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Mario Gabelli Does Not Just Look at a Stock's Price Movement
Posted by: Damian Illia (IP Logged)
Date: January 29, 2014 04:33PM

On Jan. 17, Mario Gabelli (Trades, Portfolio), the chairman and chief executive officer of GAMCO Investors Inc., bought Coleman Cable Inc. (CCIX) at an average price of $23.26 and currently holds 729,100 shares of the stock. He is betting in favor of the Electrical Components & Equipment sub-industry.

Merger Agreement

Coleman Cable is a leading manufacturer and innovator of electrical and electronic wire and cable products for residential and commercial construction, industrial, OEM, and consumer applications, with operations in the U.S., Honduras and Canada. The company produces products across four product lines: industrial wire and cable, electronic wire, thermostat wire and irrigation cable and fabricated bare wire.

Southwire Company will acquire Coleman for $26.25 per share in cash. The transaction, which values Coleman at approximately $786 million, including the assumption of $294 million in net debt, the deal was approved by the board of directors. The parties anticipate the transaction will close in first quarter 2014. This transaction will make a better company with more robust and higher-quality offering of products and services. Also, it expects an improvement in the operational processes and a stronger platform for enhanced product innovation. "We are pleased to announce this transaction, which delivers immediate and certain cash value to our stockholders and supports a strong future for Coleman," said Gary Yetman, president and chief executive officer of Coleman.

Valuation

In terms of valuation, the stock sells at a trailing P/E of 23.1x, trading at a premium compared to an average of 21x for the industry. To use another metric, its price-to-book ratio of 6.5x indicates a premium versus the industry average of 1.53x and the price-to-sales ratio of 0.5x is below the industry average of 0.93x.

Earnings per share (EPS) decreased in the most recent quarter compared to the same quarter a year ago, but it has demonstrated a positive trend in the last three years. We include in the next graph the stock price because EPS often lead the stock price movement.

We have to mention that compared to its closing price of one year ago, the stock price has jumped by 176%, exceeding the performance of the market.

Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased when compared to its ROE from the same quarter one year prior. Currently, a ROE of 45.9% is higher than all the 1,805 companies in the Diversified Industrials industry. Competitors such General Cable Corp. (BGC) has a very low ROE of 0.3% which is clearly not attractive. An alternative could be Belden Inc. (BDC) with a positive ROE of 24%.

Final Comment

The firm’s stock price has increased in an important magnitude compared to a year prior, but we don’t think this is bad news for investors entering in a position now. The merger agreement will provide attractiveness to the company, focusing on technology and innovation, as well as building more reputation among customers. 

Hedge fund gurus have also been active in the company. Joel Greenblatt (Trades, Portfolio) has also invested in it.

 

Disclosure: Damian Illia holds no position in any stocks mentioned.




Guru Discussed: Mario Gabelli: Current Portfolio, Stock Picks
Stocks Discussed: CCIX, BGC, BDC,
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