National Presto Keeps Popping Along

By Will Ashworth | November 07, 2008 AAA

How is it that a particular Wisconsin company that has traded on the New York Stock Exchange for 39 years, paid a dividend for 64 and operated continually since 1905 has exactly zero analysts covering its stock? Simple. Analysts don't know squat. Even Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) owned 83,400 shares back in 1976. Not wanting to live on past glory, it made number 60 on Forbes Magazine's list of 200 Best Small Companies for 2008. National Presto Industries (NYSE:NPK) is no flash in the pan.

You Have To Love It
How can you not like a company that has three completely unrelated business segments and is still wildly profitable? Its divisions compete in housewares and small appliances, defense products and absorbent products. Not even Lions Gate Entertainment (NYSE:LGF) could make this stuff up. Maryjo Cohen, CEO and board chair, and her father Melvin Cohen (former CEO), who together own 35.8% of the stock, have spent their lives building a business that makes money for shareholders. Paying a dividend 64 consecutive years is a testament to managers and owners working together with all stakeholders to build a successful business.

Go Where The Money Is
At the beginning of 2001, National Presto's defense division didn't even exist. In February of that year it bought Amtec Corp., a manufacturer of precision mechanical assemblies for the Department of Defense. By the end of 2005 the defense division's sales accounted for $37 million of a total $185 million in revenue.

Fast-forward two years and you get a different picture. In January 2006, National Presto bought assets from Amron, a Wisconsin manufacturer of cartridge cases for 20- to 40-millimeter ammunition supplied to the Department of Defense. Paying $24 million, it catapulted the defense division into a much bigger role within the company. By the end of 2007, the defense division contributed $224 million out of a total $421 million - more than half its overall revenue. In seven shorts years, the company reinvented itself. (Thinking about investing in defense? See A Prelude To Sinful Investing.)

Onward And Upward
Here is a company that has grown sales from $125.7 million in 2003 to $420.7 million in 2007. In that same time, diluted earnings per share rose from $2.27 to $5.65, allowing dividends paid to go from 92 cents in 2003 to $4.25 in 2008. Can you say "mucho dinero"? Here's the deal: The company got its start creating industrial-size presser canners. In 1939 it changed its name to National Presto, reflecting its Presto pressure cooker. For 60-odd years, it made money from pressure cookers and popcorn poppers. End of story.

Five Reasons This Should Be On Your Christmas Wish List
1. Its stock is up 23% in the past 52 weeks compared to a drop of 37% for the S&P 500. I really should stop now.
2. In 2007, it spent $6.2 million to generate $41 million in free cash. That's up from $29 million in free cash from capital expenditures of $7.3 million in 2006.
3. It has zero debt and $17.80 in cash per share.
4. For the nine months ended September 28, sales were $301.9 million, up from $276.7 million in 2007. Earnings per share rose to $3.80 from $3.03, an increase of 25%. Based on full-year EPS in 2007 of $5.65, full-year EPS for 2008 should be around $7.06 a share. At the current price of $66, we're talking about a forward P/E less than 10.
5. My dividend estimate for 2009 is $1 for the regular one and $3.75 for the extra. At current prices, that's a yield of 7.2%.
(Find out how this type of analysis can be applied strategically to increase profit in Fundamental Analysis For Traders.)

Bottom Line
I think this is a perennial winner. If it were to sell the absorbent products to someone like Procter & Gamble (NYSE:PG), given the lack of profitability, the resultant company would be smaller but significantly more profitable. With it, the 2007 operating margin was 12.8%; without it, 15.9%. If you're listening in Eau Claire, Wis., get rid of the diapers.

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