LINAMAR CORP. $21(Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.7 million; Market cap: $1.4 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.5%; TSINetwork Rating: Extra Risk; www.linamar.com) gets 85% of its revenue by making engines, transmissions and other precisionmachined parts for automakers. The company has plants in North America, Europe and Asia.
The remaining 15% of Linamar’s revenue comes from its self-propelled, scissor-type elevating work platforms, which it makes under the Skyjack name, plus consumer products, such as lawn mowers and cargo trailers.
Thanks to rising new car sales, Linamar’s earnings jumped 55.3%, to $0.59 a share, in the three months ended March 31, 2012. This figure excludes a foreign-exchange gain. A year earlier, Linamar earned $0.38 a share.
Sales rose 24.4%, to $839.8 million from $675.2 million. Sales at the main Powertrain/Driveline division rose 14.7% due to a rise in orders from domestic carmakers and three new plants in France that the company bought last year. Sales at the Industrial Products division jumped 113.2% as customers continued to replace their older Skyjack platforms.
The company is investing more in its plants as it wins new contracts: capital spending rose 34.6% in the quarter, to $117.0 million from $86.9 million a year earlier.
Linamar is taking advantage of low interest rates to borrow the money it needs to pay for these upgrades. As a result, its long-term debt rose to $719.8 million as of March 31, 2012, from $654.8 million at the end of 2011. Even so, the company’s debt is still a manageable 51% of its market cap.
Cars and construction are highly cyclical businesses, but Linamar has several advantages that help offset these risks. For example, it gets much of its revenue by making parts for smaller cars, which have been selling well due to rising fuel costs. In addition, carmakers continue to outsource more of their engine, transmission and other production to trusted suppliers like Linamar.
The stock has gained nearly 50% since the start of the year, but it still trades at a low 9.5 times Linamar’s projected 2012 earnings of $2.22 a share. The $0.32 dividend yields 1.5%.
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