Amit Chokshi

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  • Core Molding Technologies: 2Q Earnings Review
    I like CMT and its management team overall but even at the lower price it's tough to get too interested as far as investing in the company. Management has kept costs in line as you said and the company looks dirt cheap on a trailing basis, which as with most cyclicals may be a value trap/peak signal. My reservations with CMT is that it only has 3 customers and one - International T&E - is their owner for the most part. It's like a Ford/Visteon relationship and while the company's balance sheet is strong and their capex is now modest, I just feel that an investor in CMT is hoping that truck demand stabilizes. I am not sure its the rails that are killing the trucks as opposed to the 2007 EPA emissions standard change for diesel engines. Because of that I think going off 2006 and even 2005 results as a potential return to norm in 2008 may be misleading because a lot of truck manufacturers increased orders ahead of 2007 in 05-06. Caterpillar and Accuride have both cited weak truck demand as a reason for some operating performance issues and given the slowdown in construction which accounts for a good portion of truck demand, I'm not sure even 2008 could see a pick up.

    If you make some conservative estimates for 2007, these guys could top out at about $120MM in sales which would be below their ideal capacity for strong operating margins. I put their 2007 EPS around $0.41 a share or so (17x forward P/E valuation) and their forward EV/EBITDA around 5.2x (my est is ~$7.5MM for the year). That's a fair value for a company that is mostly US based (no material European truck exposure which is holding up well), has 3 customers that account for 80+% of sales, has a unionized workforce with I believe two sets of unions due for contract renegotiations this month and Jan 2008, and no material insider ownership (for microcaps I prefer to see a large chunk held my management).
    Aug 23 09:29 am |Rating: 0 0 |Link to Comment |View article

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