2023-08-02 18:45:36 ET
Summary
- Preformed Line Products Company has seen its share price appreciate by 185% over the past year, with strong EPS growth and a low forward P/E ratio.
- PLPC specializes in providing goods for the industrial market, particularly in power conductors and fiber communication cables, which aligns with the growing infrastructure investments in the US.
- The company's acquisitions, such as Pilot Plastics, are expected to contribute to its revenue and earnings growth, especially in the expanding fiber network market.
- PLPC has a solid financial position with manageable debt and a low payout ratio.
Investment Rundown
The share price of Preformed Line Products Company ( PLPC ) seems to have done nothing but just appreciate over the last 12 months. The share price is up an astounding 185%, but are we ripe for a correction or some consolidation going into the next couple of quarters? EPS grew by 72% YoY and came in at $4.28 in May. If PLPC achieves similar levels throughout the remaining part of 2023 the FY EPS would be $17.12. That puts PLPC at a FWD p/e of just around 10. From a buying point of view that seems like a great valuation to get in at and that is what I am thinking of with PLPC right now.
The company caters to larger companies in the industrial market. It has found a niche where it provides goods revolving around power conductors and fiber communication cables. Given that there are sustainable amounts of investments being made into infrastructure in the United States I think that PLPC is offering a great opportunity to capture some of these tailwinds. For me, PLPC is a buy at these prices despite the runup it has had. It's a long-term play that I think will continue to appreciate from here on out.
Company Segments
PLPC has been running for a very long time but has seen a strong demand recently from the industrial sector as it specializes in designing and manufacturing various products and systems that are then used in both the construction and maintenance of overhead and ground-mounted networks of energy. One of the key tailwinds for PLPC right now seems to be the growing infrastructure spending in the United States where the operations are. Building out the fiber network is a capital intensive endeavor and one that PLPC can capitalize from.
Where PLPC has been very active also is in acquisitions to fuel stronger revenue and earnings growth. Back in February, we got the news that PLPC had acquired Pilot Plastics. The Executive Vice President of U.S. Operations at PLP said the following about the acquisitions, “Pilot’s extensive knowledge and history of injection molding manufacturing will bring much-needed additional capacity to produce critical infrastructure components for North America’s current and future high-speed broadband deployment projects, including advanced FTTH (Fiber to the Home) and 5G networks”. I think this addition to the portfolio of PLPC will add additionally needed exposure to the growing markets it's targeting. Looking at how it could affect the coming reports I think it will aid in growing EPS at a similar strong rate as the company recently has done.
Fiber Connections (theverge.com)
There is still a lot of ground to cover in terms of fiber coverage in the US and this will inevitably be a benefit for PLPC. Seeing as the company also offers optical ground wire products they are ripe to gain from this tailwind. With a broad range of products in its portfolio, it becomes easier to make PLPC the obvious partner for customers and governmental contracts.
Risks
The company's current performance appears robust, and I find it challenging to be overly concerned unless a substantial event were to occur. While it is possible for the U.S. segment to encounter difficulties, considering PLP-USA briefly experienced a negative net margin in 2017, the company's globally diverse market presence could serve as a mitigating factor. Other segments have historically provided support during challenging times, such as when the AP segment faced Covid-19 lockdowns.
However, despite the overall positive outlook, prudent investors must acknowledge potential risks and be attentive to factors that could impact the company's performance. Market dynamics are constantly evolving, and it is crucial to assess how changes in economic conditions, regulatory environments, or customer preferences may affect the business.
Financials
Looking at the financials of the company there is nothing that pops out that looks alarming. PLPC has been very good at amounting to a debt position that isn't overleveraging them or creating hurdles in the future once it matures. Long-term debt sits at $68 million right now and has seen a slight QoQ reduction too.
Balance Sheet (Earnings Report)
Viewing the cash that PLPC has it's also at a decent place at $31 million. This is enough to cover almost half of all the long-term debts and this is creating a solid financial position for the company to operate in. Comparing the net debt to the EBITDA we get a ratio of 0.55 which further highlights the financial stability that PLPC operates. I find it unlikely that the company will struggle with debt.
Quite recently PLPC announced a quarterly dividend of $0.2 per share which puts the FWD yield at 0.47%. This isn't a substantial amount but does add some more benefits to starting a position in the company. The payout ratio is very low at just under 5%. This isn't enough to harm future potential acquisitions in my opinion.
Final Words
Investors that seek a solid infrastructure play in the United States should be considering PLPC right now. The company has had a fantastic run-up in the last 12 months but this hasn't put the company in an overvalued state if they keep up similar results for 2023 as the last report had to offer.
The company is making strong acquisitions and expanding its exposure to major trends like building out the fiber network. I for one am excited about the prospects of PLPC and will be rating it a buy as a result.
For further details see:
Preformed Line Products: Solid Way To Gain Exposure To Infrastructure Spending