Verified Document

Valmont Industries NYSE: VMI Began Thesis

6; the return on equity is 21.7 compared with 4.2 and the return on capital is 15.5 compared with 6.6. Valmont also has strong efficiency ratios. Asset turnover is 1.5, compared with an industry average of 0.9; inventory turnover is 5.1 compared with 4.0 and receivables turnover is also strong at 6.1 compared with 6.4. Overall, Valmont Industries has strong ratios compared with other firms in its industry, and there is indication that key ratios are improving over time. Valmont is considered by the market to have a relatively high volatility. The beta on Valmont' stock is 1.67. An analysis of the five-year chart (MSN Moneycentral, 2010) shows that the source of this volatility was a strong run up on Valmont stock in the 2006 and 2007 years, followed by a strong collapse. The stock, however, has outperformed the major indices at every point in the past five years, even with the large percentage price movements.

In 2009, Moody's upgraded its outlook for Valmont, from stable to positive (Moody's, 2009). The rating for Valmont debt is Ba1 at present, a low-level investment grade that reflects the company's relatively small size and weakness in the agricultural sector over the past year. Standard & Poor's also upgrade Valmont debt in 2009, from BB+ to BBB- (S&P, 2009).

Valmont stock is presently valued at $68.17 per share. This gives the company a price/earnings ratio of 12.00. The multiple reflects a firm with steady growth, but it appears that market enthusiasm is depressed slightly, a function of weakness in the agricultural sector. Valmont's other business lines have helped to insulate it from the impacts of the slowdown in agricultural spending, but its main businesses have slumped in the past year (Shute, 2009). The current share price is down from the 52-week high of $89.30 last August, but is a significant improvement over the 52-week lows of last February ($37.49).

Valmont Industries does not report on what it considers to be its cost of capital. Their debt is currently given a yield of XXX. The company's debt is due in May 2014 and although a yield was not readily available, 7.9% is in the range of corporates with a similar debt rating. The cost of equity would be based on the risk free rate of 0.08 plus the historic market premium of 7%. Using CAPM, this gives...

Parts of this document are hidden

View Full Document
svg-one

The proportions of debt and equity to calculate the WACC are based on the most recently quarterly balance sheet and are 41.3% debt and 58.7% equity. This gives us a weighted average cost of capital of 10.24%.
Valmont has slowly increased its annual dividend over the past five years. In 2004, the dividend per share was $0.32; by 2008 it was $0.50. For Q2 of 2009, the quarterly dividend was increased from $0.13 to $0.15, which is an annualized $0.60. This equates to a dividend yield of 0.87%. This is a fairly low dividend for a company with the long history of Valmont Industries. However, Valmont has been on a slow but steady growth trajectory for the past several years, so its current dividend seems to be a blend of dividend policies. Valmont pays a dividend as a reflection of the firm's established nature, but it restrains dividend growth as a reflection of the degree to which management prefers to reinvest earnings. The company plowed back $194 million in 2008, for example.

Conclusion

Despite hard times in Valmont's core agricultural business, the company has maintained its growth poster. Valmont has continued to build its revenues, improve its profitability and lower its debt load over the course of the past several years. In the short-run, Valmont still expects to have some revenue pressure as a result of weakness in the agricultural sector, but nonetheless is likely to continue to improve both its profitability and its balance sheet.

Works Cited:

Yahoo! Finance. (2010). Metal Fabrication. Retrieved February 10, 2010 from http://biz.yahoo.com/ic/626.html

MSN Moneycentral. (2010). Valmont Industries. Retrieved February 10, 2010 from http://moneycentral.msn.com/detail/stock_quote?Symbol=U.S.%3aVMI

Valmont Industries website, various pages. Retrieved February 10, 2010 from http://www.valmont.com/page.aspx?id=5

Valmont Industries 2008 Annual Report. Retrieved February 10, 2010 from http://www.valmont.com/lgcy/investor_relations/08report/aspx/splash.aspx

Moody's. (2009). Moody's changes Valmont outlook to positive from stable. Moody's. Retrieved February 10, 2010 from http://www.alacrastore.com/research/moodys-global-credit-research-Moody_s_changes_Valmont_s_outlook_to_positive_from_stable-PR_184352_807510581

Standard & Poor's (2009). Valmont industries' rating raised to BBB- from BB+; outlook…

Sources used in this document:
Works Cited:

Yahoo! Finance. (2010). Metal Fabrication. Retrieved February 10, 2010 from http://biz.yahoo.com/ic/626.html

MSN Moneycentral. (2010). Valmont Industries. Retrieved February 10, 2010 from http://moneycentral.msn.com/detail/stock_quote?Symbol=U.S.%3aVMI

Valmont Industries website, various pages. Retrieved February 10, 2010 from http://www.valmont.com/page.aspx?id=5

Valmont Industries 2008 Annual Report. Retrieved February 10, 2010 from http://www.valmont.com/lgcy/investor_relations/08report/aspx/splash.aspx
Moody's. (2009). Moody's changes Valmont outlook to positive from stable. Moody's. Retrieved February 10, 2010 from http://www.alacrastore.com/research/moodys-global-credit-research-Moody_s_changes_Valmont_s_outlook_to_positive_from_stable-PR_184352_807510581
Standard & Poor's (2009). Valmont industries' rating raised to BBB- from BB+; outlook stable. Standard & Poor's. Retrieved February 10, 2010 from http://www.alacrastore.com/research/s-and-p-credit-research-Valmont_Industries_Rating_Raised_To_BBB_From_BB_Outlook_Stable-737363
Shute, T. (2009). A poor crop of earnings. Motley Fool. Retrieved February 10, 2010 from http://www.fool.com/investing/general/2009/10/23/a-poor-crop-of-ag-earnings.aspx
Cite this Document:
Copy Bibliography Citation

Related Documents

Finance One Difference Between Industries With High
Words: 1813 Length: 6 Document Type: Multiple Chapters

Finance One difference between industries with high leverage and low leverage is a split between the need for fixed assets (high leverage) and a reliance on intellectual capital (low leverage). Airlines need planes, construction companies need equipment, and communications and hotel companies need infrastructure capacity. This compares with computers, drugs, biological products, educational services and electronics, all of which rely heavily on intellectual property to derive value. The conclusion that one

Finance in Public Finance, There
Words: 851 Length: 3 Document Type: Term Paper

This allows the public to see where their taxes are being spent and the way it is addressing the short / long-term issues. (Ekstedt, 2012) (Holzer, 2011) Public choice and the political processes The public has a choice as to who they want to represent them and the way various services will be provided to them. This means that they will select individuals who are closely aligned with these beliefs and

Finance Income Statement Income 36,000.00 Cogs Gross
Words: 793 Length: 3 Document Type: Essay

Finance Income Statement Income $36,000.00 COGS Gross Income $36,000.00 Expenses Rent $9,600.00 Car $5,062.00 Food $4,784.00 Clothing $1,481.00 Communications Other Expenses $1,675.00 Operating Income $12,438.00 Interest Exp $1,800.00 Income before taxes $10,638.00 Income tax $10,800.00 Net Income Balance Sheet Assets Cash Car $14,600.00 Supplies Total Assets $15,365.40 Liabilities Car Loan $14,600.00 Credit Card $5,000.00 Total Liabilities $19,600.00 Equity -$4,234.60 a) Bauman Company's current and quick ratios for the past four years are as follows: Item 2009 2010 2011 2012 Current Ratio Quick Ratio b) The firm's liquidity during the 2009-2010 period was generally good. Both the current ratio and the quick ratio during this period were relatively high, to the point where a creditor would be comfortable lending this company money in the

Finance and Financial System Overview
Words: 867 Length: 2 Document Type: Research Paper

Functional Perspective Though financial systems change over time, their functional perspectives do not. Operational financial systems are expected to be similar in all economies, hence, its necessitated reliability in the system. A functional perspective is mainly used in doing financial analysis in a financial system. It provides a foundation for referring to a country's financial system. The financial perspective also assists in evaluating the system actions. Using a financial perspective in

Finance Has Always Been a
Words: 616 Length: 2 Document Type: Admission Essay

The experience has proven to be a real world confirmation of what I want to do in my professional life. I was charged with handling financial computations, modeling, forecasting and transactions. While doing so, I knew I have found my niche in life and need only gain both theoretical training and further real world experiences to become the best I can be in my chosen field. Once I have

Finance Extremely High Wages Paid
Words: 5377 Length: 15 Document Type: Term Paper

Furthermore, the assumed 'cooperation' of these assets when put in portfolio maybe perceived differently by the manager than the reality will be which can lead to losses. On the difficulties side, first of all, the opportunity cost of capital is the hardest assumption to be drawn. Opportunity cost of capital is the expected rated of return which could be achieved from investing in a business endeavor with the same risk.

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now