Ryan Modesto Exco Technologies XTC-T PAST TOP PICK Aug 02, 2017

(A Top Pick May 24/16. Down 8.67%.) Exposed to the auto sector, and everybody is concerned about what is happening. He remains committed to the sector, and especially to this company. A tremendous organization and highly profitable. They are generating good return on equity. They undelivered relative to their competitors. Despite this, they are already producing 16% return on equity. Just initiated a normal course issue bid in February, which should provide downside protection for the stock and give management the optionality to buy back shares.

A well-run company and the ROE is high. They have been expanding margin profile. Normal course issue is going to support the stock price and they are going to see positive allocation of capital. Dividend yield of 2.84%. (Analysts’ price target is $14.08.)

Auto parts with global facilities. Revenues of about $600 million. There is probably better risk/reward in Magna (MG-T) and Linamar (LNR-T). Magna is going to do a better job of growing content per vehicle, and manage what could be a decline in North American vehicle sales during the next couple of years, because they have more exposure to other parts of the world. However, there is nothing wrong with this company.

(Top Pick Feb 24/17, Up 1.75%) He is not too concerned about the auto sales in the US pulling back a bit. This is normalization. They continue doing a great job and can make accretive acquisitions. He remains a buyer at these levels. They pay a healthy dividend yield that could potentially increase going forward.

He would call this a value investor’s dream. Across the board it is cheap, no matter what value metric you are using. It’s about a 3%-4% dividend. Has a good history of buying back shares and increasing the dividend. Hasn’t been doing too well lately, but feels there is potential in the next quarter or 2 with better earnings. A name you probably have to be patient with, but your downside risks are manageable.

This had disappointing results. Had come to the Street about a year ago talking about their new high tech Japanese equipment. Their big business is making moulds for automobile engines. It’s a purchase that auto companies would only make once or twice in a cycle. They hadn’t delivered in the latest quarter and the stock pulled back.

For its fourth fiscal quarter, XTC matched EPS estimates of 20c. Revenue missed estimates of $160M coming in at $155.4M, declining 3% year-over-year. The company's outlook for next year calls for $750M in  revenue, $120M in EBITDA, and EPS of approximately $1.50. XTC cited, "Despite current macro-economic challenges, including slightly increasing levels of unemployment, relatively high interest rates, persistent inflation, policy shifts which may occur related to the US election, the overall outlook is favorable across Exco's segments into the medium term." Despite the headwinds and decline in EPS, XTC was able to generate strong free cash flows and improve EBITDA margin from the prior quarter. There are some headwinds in the space and it is already a cyclical business, but our prior comments still largely stand. 
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