Over the past year, shares of cable manufacturer Belden, Inc. (NYSE:BDC) have returned 19.6%, outpacing the diversified industrials industry average (17.4%), and its primary competitor General Cable Corporation (NYSE:BGC), which has lost 1.5% in value over this time. The 110-year-old company, which is headquartered in St. Louis, designs, produces, and distributes all types of cables, including those of the copper, composite, and fiber optic variety.
Despite a worrisome forecast from the National Electric Manufacturers Association, in which its U.S.-centric business confidence index has fallen from 54.2 in June to 35.7 this month, Belden’s market value has remained above the water line, so to speak. Much of the positive sentiment surrounding the company is a direct result of last month’s $550 million note offering, and its recent declaration of a $0.05 per share quarterly dividend. More importantly, though, one corporate insider in particular has been buying shares of Belden; here are the details.
C. Lance Balk: A Director of Belden since early 2000, Mr. Balk has accumulated 71,972 shares of the company, worth more than $2.5 million. This total is considerably larger than the many of the insider’s colleagues, including M. John Monter (22,320 shares), A. Dean Yoost (6,400 shares), and Glenn Kalnasy (32,132 shares). Interestingly, Mr. Balk has purchased 3,000 shares of BDC over the past week at an average price of $34.15 a piece. In the time since these transactions, which were made on August 31st, Belden’s stock price has jumped nearly 5.0% in value.
Now, from a quantitative standpoint, the diversified cable manufacturer is an attractive investment at the moment, as it yields impressive earnings potential at reasonable valuation metrics. In each of the company’s past seven quarterly reports, Belden has beat the Street’s earnings estimates, generating an average positive surprise of nearly 13.0%. In its most recent results, which were reported on August 9th, the company reported a second quarter EPS of $0.92 a share, topping analysts’ estimates by a whopping 18 cents.
Supported by better-than-expected margin expansion, Belden also raised its year-end earnings guidance to between $2.95 and $3.05 a share, which would mark a 25.6% growth from 2011 totals. With a similar consensus estimated by Wall Street, this bottom line expansion is expected to continue into 2013, as early EPS forecasts average $3.56 a share, with a high of $3.65 a share. Despite this optimistic outlook, it appears that the markets have yet to take full notice, as the stock is currently undervalued when using traditional price ratios.
At its current price in the $35 range, shares of BDC are trading at a Price-to-Earnings ratio of 12.9X, below the industry average (16.2X) and peers like General Cable Corporation (25.6X), Amphenol Corp (NYSE:APH) at 19.6X, TE Connectivity Ltd (NYSE:TEL) at 13.6X, and Molex, Inc. (NASDAQ:MOLX) at 16.7X. Moreover, the stock also trades slightly off its 10-year historical average P/E of 13.2X. When earnings growth is factored into the equation, this undervaluation is even more prominent, as Belden sports a PEG ratio of 0.86; typically any figure below 1.0 signals that a stock is attractively valued.
Despite growing its operating (21.0%) and free (23.4%) cash flows quite swiftly post-recession, Belden still trades at a paltry Price-to-Cash Flow ratio of 8.8X, below both the industry average (9.7X), and its own 10-year historical average (13.3X). In fact, over the past decade, the company’s cash levels have traditionally traded at a 33% premium to those of the S&P 500. This year, they are much cheaper, trading at a near parity with broader market averages.
To recap: Belden has provided investors with above-average appreciation over the past year, and a strong earnings forecast warrants a fair amount of optimism. Throw in the fact that shares of the company are also trading at relatively inexpensive valuation indicators, and it’s easy to see why Lance Balk has been feeling bullish. As various empirical studies have shown, it is usually a good idea to mimic, or “monkey” insider holdings, and Mr. Balk’s transactions are no exception. Going forward, fairly valued shares of BDC can eclipse $40 by Christmas time, which would mark a return of 12.7% in a little over three months.
