BKI posts earnings of $.78, 10% over the expected $.71. Shareholder's equity falls to $128 million from $141 million while long term debt shoots up and Debt to equity ratio skyrockets. Shares outstanding drop from 21.4 million a year ago to 18.7 million today. Book value barely changes from $6.58/share to $6.84/share despite earnings of $2.79/share.
What is going on here? Answer, this is a dull boring business that is highly predictable, so.... they are borrowing money for acquisitions and using cash flow to buy back shares. The net effect is that even though the top line is only up 13.4% over a year ago, the bottom line is up by 20% for the quarter and 38.8% for the year Amazing what a little leverage will do for you.
And as for return on equity, earnings of $2.79 on a book value of $6.58 look pretty good in my book.
So where do they go from here? Well, the debt to equity ratio is up to about 4.5, which for most businesses is pretty darned high, so I doubt they'll borrow more. My guess is that they pay the note down a bit this year, and maybe buy a few shares back if the price dips. First call has them at $2.91 for the next 12 months, but I'm sure it will be revised up in view of the current earnings. I suspect they'll more like $3.10, which should move the stock over $40. If they buy another half million to million shares back (which they probably will), the earnings could be as high as $3.30. With that growth in earnings a price in the high $40s to low $50s within 6 months wouldn't surprise me.
Is this an exciting as tech stocks? No, but it is more stable, although with it's high debt load it will take over 5 years to pay it all off so there is some risk.
But then, I guess I'm just talking to myself. <vvgb>
Carl |
