Raven Industries
Features, by Ken Kavula, Subscriber May 12th, 2006
RAVN's recent history shows consistent growth and profitability.
Fundamental Forecast: RAVN
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Look! Up in the sky! It’s a bird; it’s a plane; it’s a weather balloon. And it’s probably made from material manufactured by a diversified company based in Sioux Falls, South Dakota. Raven Industries (RAVN) also makes the material used in those gigantic balloons that come floating through New York every Thanksgiving. RAVN also has contracts with the U.S. Dept. of Defense to make parachutes. Raven Industries recently celebrated the 50th anniversary of its founding in 1956.
The company has four operating units. Aerostar is the unit that accounts for the balloons and parachutes as well as various kinds of protective wear and technologies for sewing and sealing. The Flow Controls unit has products that help farmers control fertilizer and pesticide applications and is a leading developer of GPS-based control systems. The Engineered Films unit creates reinforced plastic sheeting used for manufactured housing and RV’s and as temporary covers for agriculture and construction. These films are also used in pond construction and for oil exploration. The fourth unit, Electronic Systems, provides electronic assemblies for communications as well as other applications for the US military. It provides full services from engineering and manufacturing to customer service.
Growth
The last year saw solid growth in three of the four operating units. The Aerostar division had its parachute contract delayed but the company is still optimistic about contracts going forward.
Total Revenues have grown by over 15% in the most recent five year period with earning per share growing at almost 30% in that same period. In the last fiscal year, revenues advanced by 22% year-to-year, reflecting, in part, gains in oilfield pit-lining and construction sales.
The company indicates it is contributing to heavy investment in equipment for the Engineered Films division as well as in product development and marketing for its Flow Controls unit. The new manufacturing equipment is expected to be operational by October, 2006. In February of 2005, the company acquired Montgomery Industries.
Profitability
Earnings growth in the past five years has exceeded sales growth due to rapidly expanding margins. In 2000, margins were just under $.12 and by the end of fiscal 2005 they had increased to over $.18. In the past year, EPS have gone from $.97 to $1.32 and in the most recent quarter, earnings have jumped from $.20 to $.30, a gain of 50%. The analyst consensus estimates for earnings growth in the future are 24.5%. The company pays a dividend of $1.02 per share.
Valuation
The average P/E for companies in the Diversified industry is 15×. Raven Industries has an imputed PE of 21.2x based on its 24.5% growth rate going forward. The average PE value over the past five years has been 14.7x and RAVN’s average P/E has increased each year.
Expected Returns
On the day of this study, RAVN was trading at $41.16. At this price, Manifest Investing has calculated the Potential Average Return to be 17.5%.
Quality & Conclusions
Value Line gives RAVN a financial strength rating of B++. Raven has an EPS Stability rating of 86. Its growth rate exceeds its peers, as does its net profit margin. These four factors combine to give RAVN a Manifest Investing Quality Rating of 82.4. This venerable company has shown that it can adjust and grow with the times as it turned itself from a maker of silk parachutes into a diversified group of companies which provide high tech solutions to many types of problems.
RAVN’s recent history shows consistent growth and profitability. It appears to be a solid investment for the future. RAVN’s size, however, will contribute to its volatility. Investors in smaller company stocks need to be aware of their susceptibility to dramatic swings both in earnings and in share price.
Ken Kavula
Ken Kavula is a retired educator and successful long-term investor. Ken has served in a number of leadership positions for the National Association of Investors and is active in four investment clubs. Welcome to the Clubhouse. Subscribers are invited to share their favorite experiences, suggest best practices and most importantly, let us know “What’s on your mind?” What topics and questions do you have? We all get better when we do this together. Email Ken at kkavula1@comcast.net.