Miller Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLR)") else Response.Write("(NYSE: MLR)") end if %>
Phone: 770-988-0797
Price (2/6/97): $19 7/8

HOW DID IT DOUBLE?

If you have ever needed a tow truck, chances are you've needed Miller Industries, the largest maker of towing equipment in the U.S.

Miller Industries was a sleepy little stock that traded between $3 and $5 per share for the first year after it's IPO in August 1994. It nearly doubled through the first half of 1996 and traded for $9 per share in early August. The stock has doubled again since that time. The increase in stock price in the first half of 1996 was fueled by a victory in a key patent infringement lawsuit. The award of $1.1 million was nice, but the promise of future royalty payments and a competitive advantage was even better. The second half rise was fueled by two events. After poor earnings reports in the first two quarters of 1996, the company reported a 35% increase in earnings per share in the July quarter and a 58% increase in the October quarter. Increasing earnings consistently lead to increased stock prices.

The second factor contributing to the rise was the company's announcement in August that it was buying four key distributors of its products and it planned to acquire more in the future. In the past it had depended on third parties to sell its equipment. This move gives the company more control over its sales.

BUSINESS DESCRIPTION

Miller Industries is the largest maker of towing equipment in North America. The company makes the towing gear that is mounted on truck chassis from a number of vehicle manufacturers. This gear is sold under the Century, Holmes, Champion and Eagle brand names. The company recently won an important patent infringement lawsuit that increases its competitive position within the towing equipment industry.

The company also made a significant move to increase overseas sales with the purchase of Jige Lohr, one of Europe's largest towing equipment makers. Prior to this purchase, Miller already had 10% of the foreign market.

The towing industry is growing due to an increase in the offering of roadside service packages as part of new car sales incentives and cellular phone service packages. These "free" roadside service plans have increased the demand for towing services. On top of that, there is an aging fleet of tow trucks that will need to be replaced over the next several years.

FINANCIAL FACTS

 Income Statement
12-month sales:     $161 million
12-month income:    $10.1 million
12-month EPS:       $0.29
Profit Margin:       6.26%
Market Cap:         $771 million 

Balance Sheet
Cash:               $12.5 million
Working Capital:    $53.9 million
Long-term Debt:     $8.1 million

Ratios
Price-to-earnings:   68
Price-to-sales:       4.7

WHERE TO FROM HERE?

A tow truck maker with a high-tech PE of 68 certainly catches my attention! I had no idea that the burly guy grunting at me when my battery was dead was driving such a moneymaker!

The market capitalization of $771 million makes this company a bit large to examine with a simple PEG. However, analysts estimate earnings of $0.49 per share for FY 98 and a 5-year annualized growth rate of 34%, allowing us to calculate a fair value of $16 1/2 for these stubs. In other words, Miller Industries is overvalued by earnings growth criteria. In addition, the price/sales ratio of 4.7 is very generous for this type of company. This stock is by no means inexpensive by traditional valuation criteria, and in all probability, the next doubling in price will be a bit longer in coming.

I am impressed with the chances for significant market share increases for Miller Industries. Coupled with the push for international sales, this puts the company in position for upside surprises. Nonetheless, current prices leave no room for error, and if the company fails to meet expectations, your portfolio may be in need of a tow truck.

-Mark Weaver, MD (MF Uptrend)