TWI - Titan International Seems Like A Good Deal Right Now

2023-09-11 12:11:10 ET

Summary

• TWI's share price has recovered well after a sharp fall, presenting a good investment opportunity with a low p/e ratio.
• TWI operates in the agricultural and consumer markets, specializing in tires, wheels, and undercarriage components.
• Despite a decrease in revenues, TWI's international presence and long-term growth potential make it a solid investment in my view.

Investment Rundown

Earlier in 2023, the share price for Titan International ( TWI ) fell quite sharply to the low of around $10.4 per share. Since then though it has managed to recover very well and right now sits around the $12 - 13 range. This price drop has opened up a very good investment opportunity in my mind as the p/e is below 9 on an FWD basis, which in comparison to the broader sector displays a very good discount of over 60%. Some of the worries about future performance for the company seem to come from logistical difficulties and a rise in expenses. However, as recent news showed, sales of tractors for example rose steadily during the summer months. Besides the discount, investors are also seemingly getting a company here that is buying back shares at a steady rate, making it a buy for now in my opinion.

Company Segments

TWI is a leading manufacturer and distributor of a comprehensive range of tires, wheels, and undercarriage products designed to meet the demands of off-highway vehicles across diverse global markets. With a strong presence in Europe, North America, the Middle East, and beyond, the company serves a broad clientele across several continents.

TWI operates across two primary segments, catering to the unique needs of the agricultural and consumer markets. Within these segments, the company specializes in providing an extensive array of high-quality products, including rims, wheels, and undercarriage components. These critical components are essential for a wide range of agricultural equipment, encompassing everything from precision planters to powerful tractors and versatile skidders.

One of the positive news that arrived earlier this year was the rise in tractor sales, which has been a major benefit to TWI and a growth driver for the coming quarters I think. On a YoY basis, TWI is still displaying a decrease in revenues, which comes from the large amount of sales that happened last year and the fact that customers want to keep more lean inventory levels and not be fully stacked all the time. This has caused a softer market condition of demand this year so far, but looking at the long-term it still seems very optimistic in my opinion.

Markets They Are In

As mentioned earlier, TWI has managed to gather up an international presence where they serve a lot of different countries and customers across regions.

One of the reasons for its success I think comes from the high barrier of entry into the market. Setting up operations and facilities to manufacture the products that TWI has is very expensive and seems to have been a reason for the long-term steady growth they have had so far. To give some context to that statement, TWI has in the last 10 years managed to grow the EPS by over 6% annually, which has been possible by strong expansions and also offsetting some of the expense on logistics and shipping companies' efficiency. As TWI focuses both on regional and local customers, it has helped them build up the customer base they have today and will be a key advantage going forward in my opinion.

Risks

To ensure the efficient delivery of its products to end consumers, the company utilizes a diverse range of logistical services and transportation methods, with container shipping being a prominent component. The demand for containers is intricately linked to the pace of global trade and economic growth, making it a pivotal factor in the company's operations. Containers play a crucial role in facilitating the movement of goods across international borders, and their availability can significantly impact the cost and timeliness of shipments.

There is no guarantee that the company will maintain its ability to transfer certain shipping and delivery-related expenses to its customers in the future. This uncertainty surrounding cost absorption has the potential to result in shrinking profit margins, which, in turn, may exert adverse pressure on its financial stability and overall balance sheet. In an increasingly competitive marketplace, the company faces challenges in balancing its operational costs while providing value to its customers. Factors such as fluctuating fuel prices, transportation expenses, and supply chain disruptions can significantly impact the cost of shipping and delivery. The ability to pass these increased costs on to consumers largely hinges on market dynamics, customer willingness to accept price adjustments, and competitive positioning.

Financials

Looking at the financials for TWI I think they remain very solid still as the cash position has climbed very well to nearly $200 million from December 31, 2022. This has put TWI in a far better financial position and is a reason for the perhaps slightly higher p/b the company is receiving at 1.8 currently. Looking at the debt position for the company, I think it's very manageable at just under $450 million. This means that, right now, TWI can almost pay down 50% of the debt. That should be rewarded with a higher valuation in my mind, something along the sector of 2.6 on a p/b basis, maybe. Nonetheless, I think this indicates the potential upside the company is offering currently.

Final Words

Investors who want exposure to this industry should be considering TWI right now, I think. The company has managed very well to grow its asset base and boasts a cash position of over $200 million. In terms of the valuation, it's trading based on earnings at a discount of over 60% to the rest of the sector. The risk/reward profile here is very favorable and results in me right now rating it a buy.

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