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Smith's International Expansion Shows Great Valentino Slingback Pumps Potential
The market last week was anything but stable. The lasting effects of the subprime mortgage crisis, combined with the more recent debt and credit issues plaguing Europe and the US, have created a volatile market that has left many investors seeking safe haven investments. Treasury rates have reached all time lows as investors have flocked to treasuries amidst market turmoil, but there are still some relatively safe equity alternatives out there that have growth potential. Smith Corporation (NYSE:AOS), one of the largest water heater manufacturers in North America. The company has made recent headlines for divesting their electrical products business to Regal Beloit Corporation, as well as for their Valentino Flats On Sale $418 million purchase of Lochinvar. Intrigued by the headlines, I decided to do a little research on the company to see if this could be a prospective investment opportunity and was impressed with what I found. Smith is the largest manufacturer of water heaters in the US, controlling just over 40% of the market share. They have a free cash flow per share of $1.56, which is the fifth best in the building products industry according to Zack Investment Research. Free cash flow is a measure of both financial strength and flexibility and could be crucial to surviving in a volatile market. Smith has had some impressive success internationally. main focus internationally has been the Chinese market, where they predict that China middle class will expand exponentially to account for 75% of the middle class market by 2015. Smith has a 3 year plan to open 300 stores per year in China, which would be nearly a 50% increase in its Chinese presence. plans to accommodate these new stores with an increased production in China to 3 million units by 2013, nearly a 50% increase, made possible by the addition of a second manufacturing site. to exponentially increase their sales. increased their sales in the Chinese market by 30% over the previous year. 2010 annual statement:
Our Water Products water heater operations in China grew significantly in 2010. We expect this growth to Valentino Sandals continue at a rate of nearly two times the growth in China GDP as geographic expansion, market share gains and new product introductions contribute to our growth.
This is a pretty bold statement, considering China is one of the fastest, if not the fastest, growing economies Cheap Valentino Pumps of the last decade. Are they being overly aggressive in their estimates? It is possible, but most annual reports tend to err on the side of the conservative. Making such a bold statement and falling significantly short would cause investors and shareholders to lose confidence in the company. I believe they are very confident with their knowledge of the Chinese water heater market and will be able to translate their store openings into a large growth in sales and profit. Their second quarter earnings in China increased 20% from the previous year second quarter, so the strategy seems to be paying off quickly. into India, another promising market in terms of growth. predicts $20 million in sales for its operations in India throughout 2011 and plans to pursue the market share in a similar way as they did with China. Smith has aligned themselves with a highly efficient water heater producer with a reputation for quality. believes they can leverage the strong Lochinvar brand name with their proficient manufacturing and sales outlets to gain synergies of $10 to $15 million within the first few years. Earnings per share could increase $.40 to $.50 per share in 2012.
The company has significant cash flows, but will Valentino Shoes it be enough to cover the vast expenses that will follow their expansions? As listed above, they are 5th among the building products in free cash flow per share and had a cash flow from operations of $124.8 million in 2010. The company has a solid cash flow base and shouldn have a problem increasing their debt if need be.
Further, with a beta of .73, the company is a relatively safe equity choice in terms of market movement and shouldn be hit as hard by market turmoil as companies with higher betas. I think this is a good long term growth investment Valentino Clutches and the risk/reward tradeoff makes this buy attractive.