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McCoy Corp.
MCB-T
HOLD
Mar 18, 2024
Stock price when the opinion was issued
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Longer-term out, over the next few years, he thinks you will be rewarded. Half their market cap is in cash. When the oil/gas sector hits bottom, their earnings and revenue pretty much collapses. Also, it is offshore and a lot of their south American stuff has hurt them. He expects that over the next few years things will come back and you will be handsomely rewarded. The next couple of quarters are probably not going to look good.
Most recent addition to portfolio. Believes lots of opportunity in energy services. Active in well construction (cheaper & safer). Attracted to the new product line that will offer recurring revenues. Expecting a re-rate on the stock price as a result. Pristine balance sheet, good management. Expecting further share price appreciation.
A week or two ago, stock popped on excitement over a new product that will lead to some recurring revenue, cut costs, and improve safety. 2025 will be a good year, but product is still being tested and rolled out. Pivotal year will be 2026. Trades at only 6x PE, profitable, great balance sheet, well run.
MCB provides services and equipment to the energy sector, such as drilling equipment and replacement parts. It also makes heavy-duty trailers. It is small at a $116M market cap, and cheap at 11.5X forward earnings. It has a decent dividend yield of 2.1%, a small buyback policy, earnings growth is expected to be decent, and analyst estimates are rising. Profit margins are strong and rising, and debt levels are low. We think it looks interesting here, and we would be comfortable buying today, although it is a small name, and we would be mindful around position sizing.
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MCB reported Q4 revenue of $19.7M, increasing 8% year-over-year from $18.3M in 2022. The increase in revenue was driven by strong demand for the newly commercialized smart products, particularly McCoy's Flush Mount Spider (FMS). MCB also reported net earnings of $2.7M, compared to net earnings of $7.3M in 2022, with the comparative period benefitting from a $3.9M gain on sale and leaseback of McCoy's facility in Cedar Park, TX, and $1.0M recovery of income taxes. MCB cited, "Though timing and product mix of customer purchase commitments may result in quarter-to-quarter fluctuations in revenues and gross margins, we anticipate sustained success beyond drilling activity cycles as adoption of our smart technologies continues to accelerate." We think this was an OK quarter as revenue growth was good and earnings seems to be impacted by one-time factors in 2022 but still did decline significantly.
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