November 11, 2024 | Read Online | | Value Investor Daily #59 A Small Cap Breaking Out in the New Trump Era |
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(By clicking this link, you agree to receive emails from us and our affiliates. You can opt out at any time) | | | Small caps have surged since Trump won the election. | The Russell 2000 Small-Cap Index ETF (IWM) has increased 8.7% since the election. During Trump's four years in office, it went up 115%, a 21% CAGR. The market thinks small companies will benefit again in Trump's second term. | Let's look at a small-cap idea. Miller Industries (MLR) has been on an absolute tear, up 100% in the past year. But it still looks interesting here from a valuation standpoint. It's up 8.6% since the election. | The company has a market cap of $860M and trades for 12 times TTM earnings. Founded in 1990, Miller is a U.S.-based leader in towing and recovery equipment and in the manufacturing of wreckers and car carriers under brands like Century and Vulcan. | Headquartered in Tennessee, Miller's domestic manufacturing operation positions it well for the next few years, especially following Trump's 2024 election win. | Historically, small-cap stocks like Miller tend to gain from policies that favor domestic production, deregulation, and capital investment—critical elements of Trump's platform. | The company's sales have grown 11.7% annually over the last decade, from $492 million in 2014 to $1.29B in the previous 12 months. | Diluted earnings per share (EPS) have grown 20% annually at that same time, although most of that growth is due to a 180% spike in 2023. However, TTM diluted EPS is $6.23 vs. $5.07 in 2023, still running at a 22% YoY growth rate. | Miller's Q2 2024 results were impressive, including revenues of $371.5 million, a 23.7% year-over-year increase. Consistent product demand and enhanced production efficiency drove the company's results. | CEO Will Miller highlighted a "robust order intake and stable backlog," a strong sign for shareholders. | Analysts forecast sustained revenue growth, estimating $1.33 billion by the end of 2024 and projecting growth through 2029, when revenue is expected to hit $1.98 billion. | Earnings per share (EPS) are expected to rise from $5.76 in 2024 to $10.55 by 2029. | Currently, Miller maintains a net debt-to-cash position, with $70.66 million in debt against $23.82 million in cash, which CFO Debbie Whitmire noted as a focus for improvement. She underscored the company's cash management efforts, aiming to "enhance cash conversion significantly in the second half of 2024." | With Trump's administration likely favoring deregulatory policies to ease supply chains and support infrastructure spending, Miller could see even greater demand coupled with higher efficiencies. | Miller's risks include its elevated working capital needs, with Whitmire noting, "Our inventory levels have remained relatively consistent," which is vital in maintaining flexibility amid fluctuating demand. Upcoming 2027 emissions regulations could also impact the larger trucking sector, but Trump's agenda could help. | The company reports earnings this week, on Wednesday, November 13th, after the close. | Assuming a 10% EPS growth rate and 10% discount rate, we arrived at a fair value of $108, a 30% discount to the current price of $75. | What do you think of Miller Industries? Do you like hearing about companies trading at 52-week highs that are still worth investigating? Or do you prefer beaten-down stocks? | If you've been a reader for a while, you probably know we slightly prefer the turnaround stories, but we think value can be found anywhere, even in stocks making new highs. It's always fun to look at both ends of the market. | Thanks for reading today! | Happy Investing,
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