Monday, June 2, 1997

Raymond Corp.
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Phone: 607-656-2311
Price (6/2/97): $32 1/8

HOW DID IT DOUBLE?

Forklift maker Raymond Corp. was at a 52-week low of $16 in December. It slowly crept higher until it took off in mid-February. The reason for the move was the announcement by Metropolitan Capital Advisors that it had acquired 25% of the stock and that it had asked management to make changes to enhance shareholder value, including looking for a buyer. Included in the group urging a buyout was George Raymond, former owner and a director, who owns over 16% of the company.

Takeover speculation and a stock that was significantly undervalued was all it took. Investors pulled up the forklift and started piling on shares.

BUSINESS DESCRIPTION

Chances are you've met a Raymond DOCKSTOCKER at your last visit to a warehouse store. Raymond makes a variety of operator-controlled machines that are used to move loads from one place to another. It has secured contracts from Wal-Mart and Home Depot as well as OEMs such as Mitsubishi and Caterpillar. The company sells both in the U.S. and in the international markets.

FINANCIAL FACTS

Income Statement

      12-month sales: $335.8 million
      12-month income: $15.6 million
      12-month EPS: $1.96
      Profit Margin: 4.6%
      Market Cap: $324.2 million

      Balance Sheet
      Cash: $6.8 million
      Current Assets: $122.7 million
      Current Liabilities: $52.9 million
      Long-term Debt: $5.4 million

      Ratios
      Price-to-earnings: 16.4
      Price-to-sales: 0.97

HOW COULD YOU HAVE FOUND THIS DOUBLE?

This is one of the Doubles that offered investors ample opportunity to hop on board. Back in December when the stock was at its low of $16, its YPEG valuation was $34. The stock was selling at only slightly above book value. Raymond was clearly undervalued. Even after the demands of Metropolitan Capital Advisors had been made public, these shares were undervalued by 25%. In addition, Value Line ranked Raymond as either #1 or #2 for timeliness during that period.

WHERE TO FROM HERE?

It appears to this Fool that the company will certainly be sold. The only question is, at what price? By any valuation measure, Raymond looks to be trading at fair value. With profit margins of 4.6%, a price/sales ratio around 1.0 looks about right. The company trades at 2.5 times book value. The YPEG valuation currently stands at $24 based on long-term growth estimates of 12% and earnings estimates of $2.03 per share for the upcoming fiscal year.

While I see little downside risk as the company's basic business prospects appear solid and the spectre of a takeover will hold share prices up, the upside appears to be limited.

-Mark Weaver, MD ([email protected])

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