TENNANT CO. $68(New York symbol TNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 18.4 million; Market cap: $1.3 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.2%; TSINetwork Rating: Average; www.tennantco.com) makes industrial floor-cleaning equipment, including scrubbers, sweepers and polishers. It also manufactures cleaning gear for garages, stadiums, parking lots and city streets.
In 2008, the company started selling equipment featuring its ec-H20 technology, which uses electricity to turn tap water into a chemical-free cleaning solution. This helps cut the machine’s operating costs.
Strong demand for this equipment increased the company’s sales by 9.4% in the three months ended June 30, 2014, to a record $219.1 million from $200.2 million a year earlier. Sales of ec- H2O gear rose 7.6% and account for about 20% of Tennant’s overall revenue.
Earnings gained 8.9%, to $15.5 million from $14.3 million. Per-share earnings rose 9.2%, to $0.83 from $0.76, on fewer shares outstanding.
The company spends just 4% of its sales on research, with most of that going to developing energy- efficient equipment that uses fewer chemicals.
Tennant plans to launch 16 new products in 2014 and 47 more by the end of 2016. That should help it reach its goal of increasing its annual sales to $1 billion by 2017, up from $752.0 million in 2013.
Tennant’s strong balance sheet will support its growth plans. As of June 30, 2014, its long-term debt was just $24.6 million, or 2% of its market cap. It also held cash of $62.6 million, or $3.41 a share.
The stock has soared 142% in the past five years. It now trades at 26.6 times the $2.63 a share that Tennant will likely earn in 2014. That seems like a high p/e ratio for a cyclical industrial stock, but it’s still reasonable in light of Tennant’s unique products. Moreover, Tennant is aggressively expanding overseas, where it currently gets just 30% of its sales.
The company recently raised its quarterly dividend by 11.1%, to $0.20 a share from $0.18. The new annual rate of $0.80 yields 1.2%.
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