Mid-cap stocks offer attractive growth with a good history of income generation – stocks in the Mid-Cap segment have outperformed the stocks in the Small-Cap and Large-Cap segments. The five year annualized return for this category as per the S&P400 Mid-Cap Index amounted to 3.27%. Analysts believe that mid-cap stocks provide the best of both worlds by yielding stable returns with growth prospects.
In my opinion, the three mid-cap stocks to watch out for are B/E Aerospace Inc (NASDAQ:BEAV), Tyson Foods, Inc. (NYSE:TSN) and Acuity Brands, Inc. (NYSE:AYI).
B/E Aerospace Inc (NASDAQ:BEAV)
The company reports its operations in three segments, mainly commercial aircraft, consumables management and business jet. The annual average revenue growth of the company in the past three years amounts to 16.8%. The net income growth depicts a further improvement totaling 18.1%. First quarter 2013 revenues showed a further increase of 12.7% year-over-year, mainly attributed to operational efficiencies.
The decision to capitalize its operations towards seller-furnished equipment (SFE) still continues. The management commits to CAPR of 20% for the coming four years and continues to allocate its earnings towards growth prospects and expansion plans. An increase in capital expenditure of 64% in 2012 authenticates the aforementioned claim. The free cash flows are projected to be around 70% of net earnings in the coming year.
The company’s revenues are contingent upon the airline industry, which is a heavily regulated industry; therefore, compliance costs can adversely affect its operating earnings. Furthermore, the airline industry tends to be more sensitive to changes in economic climate. More specific risks include a large portion of intangible assets on the balance sheet, impairment of which would cause a significant decline in the asset base.
The P/E and forward P/E ratio stand at 25.5 and 14.5, respectively. The projected P/E ratio is expected to decline due an anticipated increase in earnings by the end of the year.
Tyson Foods, Inc. (NYSE:TSN)
Tyson Foods, Inc. (NYSE:TSN) is the second largest food production company, specializing in production, marketing and distribution of meat, prepared foods and related products. It has a vertically integrated production process with four distinct operating segments, namely chicken, beef, pork and prepared foods.
Tyson Foods, Inc. (NYSE:TSN)’s revenues for the recent quarter amounted to $8.419 billion, showing a modest increase of 1.82% compared to last year’s quarter. On a broader term investment horizon, the company’s average revenue growth amounted to 7.6% in the last three years. However, more recently, the company has been losing money due to a decrease in demand for packaged food and beef and an increase in the prices of feed.
The management declared a quarterly dividend of $0.05 per share for the recent quarter, backed by an annual EPS of $1.58. The projected dividend yield is expected to equal 0.8% based on this quarter’s estimates. The free cash flow of the company increased by 23% despite a decline in operating earnings.
Expectations for the coming quarters are contingent upon stability in the farm industry. In the future, the meat industry is expected to make a recovery, especially the beef segment as the Japanese market provides room for expansion. Operational efficiencies in the chicken segment are expected to have a reinforcing effect on the increase in profits. Future prospects for the company seem promising as the management increases its capital expenditure by 7.3% in 2012.
