FINNING INTERNATIONAL INC. $33(Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.2 million; Market cap: $5.7 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.finning.com) is the world’s largest dealer of tractors, bulldozers and trucks made by Caterpillar Inc. (New York symbol CAT). It also sells heavy equipment made by other firms.
Finning’s clients are mainly in the mining, forest products and construction industries.
In the three months ended June 30, 2014, the company’s overall revenue rose 9.1%, to $1.8 billion from $1.6 billion a year earlier.
Revenue gained 21.2% in Canada (which accounts for 53% of the total), thanks to strong demand from the mining, oil sands and electrical power industries.
U.K. revenue (15%) jumped 20.8%, mainly due to favourable exchange rates (excluding currency rates, revenue rose 3%). However, slowing mining activity in Argentina and Chile cut South American revenue (32%) by 9.7%.
Earnings gained 4.5%, to $86.4 million, or $0.50 a share. A year earlier, Finning earned $82.7 million, or $0.48 a share.
In July 2014, the company paid $13.9 million for two U.K. firms that sell and service GPS and laser-based positioning devices made by Trimble Navigation (Nasdaq symbol TRMB).
These products guide operators of heavy construction equipment. Finning already sells Trimble products at its Canadian and South American operations, which should help it integrate them into
its U.K. business.
The stock has gained 54% in the past year. Even so, it trades at an attractive 16.3 times the $2.03 a share that Finning will likely earn in 2014. The $0.71 dividend yields 2.2%.
PRECISION DRILLING CORP. $13 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.7 million; Market cap: $3.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.8%; TSINetwork Rating: Extra Risk; www.precisiondrilling.comtarget=”_blank”) provides contract drilling services to land-based oil and gas producers, mainly in North America. It operates 333 rigs.
Higher oil and gas prices have spurred demand for Precision’s drilling services. As a result, revenue rose 25.4% in the second quarter of 2014, to $475.2 million from $378.9 million a year ago.
However, the company lost $7.2 million, or $0.02 a share. Precision recently changed the way it calculates depreciation on its rigs, and the new method cut its earnings by $14 million, or $0.05 a share. A year earlier, it earned $473,000, or nil per share.
Precision now plans to spend $934 million to build and upgrade rigs in 2014, up 12.1% from its earlier forecast of $833 million. Drillers have already signed contracts for these new rigs, which cuts the risk of this investment.
The company should earn $0.84 a share this year, and the stock trades at 15.5 times that estimate. The $0.24 dividend yields 1.8%.
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