By:
Jordan Luczaj, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is mentioned
in this article.
Summary
· Standex
International Corporation (NYSE:SXI) is a leading
manufacturer of a multitude of products and services for diversified commercial
and industrial markets. Standex has twelve operating segments that are
organized into five reporting segments: Food Service Equipment, Engraving,
Engineering Technologies, Electronics, and Hydraulics.
· SXI has 42 United States patents and 41
trademarks. They are extremely diversified and losing any one of these would
not have a significant effect on their performance.
· Standex is exceling due to the large
performance increases in both their Engineering Technologies and Electronics
segments. Net sales and income from operations of the Engineering Technologies
segment increased by 10.1% and 17.0% respectively yoy. The same can be said for
the Electronics space where net sales and income from operations grew by 15.5%
and 31.1% yoy.
· The Engineering Technologies and
Electronics segments have grown as result of slight restructuring and some
acquisitions. Aviation has been a major driver in the Engineering Technologies
segment, and saw growth of 29.7% from the prior year including an increase of
18% in unmanned space market.
· SXI also acquired OKI Sensor Device
Corporation on March 31, 2017 for $129.2 million. This acquisition added $12.4
million in net sales during fiscal year 2017. The Company expects to see
incremental synergies from OKI Sensor Device Corporation, now named, Standex
Electronics Japan, throughout fiscal year 2018.
Key
points: Standex International Corporation has soared since
being added to the AIM Small Cap Equity Fund in April of 2016. At this time, we
purchased SXI for $76.36 per share, and today it is worth $104.40 per share
representing a gain of 36.72%.
Standex has seen contract
growth in the aviation division of the Engineering Technologies segment. This
was a result of Airbus ramping up activity on the A320 CFM engine. Originally,
it was believed that they would achieve full volume by the end of FY 2017, but
some of these initiatives have been pushed out. It now looks like SXI will
reach capacity during the middle of FY 2018, suggesting a strong possibility of
higher sales.
SXI has not only been
increasing sales in their higher margin business segments, but they are also
raising these margins. They have been spending considerably larger sums on
capital expenditures in order to increase capacity in their Engraving,
Engineered Technologies, and Electronics segments. Immediately after making the
strategic acquisition of Standex Electronics Japan, they approved capital
expenses to expand machinery and factory capacity.
The most recent
acquisition made by SXI is that of Piazza Rosa in Italy. This acquisition
allows Standex to widen their potential market considering Piazza’s specialty manufacturing
capabilities in polishing, laser welding, laser hardening, laser cladding, and
repair and maintenance services. Ultimately, Piazza allows Standex to dip into
a new market that they believe will get a jumpstart in FY 2018. Automotive
engraving relies on new model introduction, and many believe new introductions
are going to be up 30% in FY 2018 compared to FY 2017.
What
has the stock done lately?
Standex International
Corporation has done nothing but climb since June of 2017. In September, the stock
hit a monthly period where it went up about $10 per share. Specifically, on
September 8, six individuals or asset managers increased their positions in SXI
causing the start of that significant price jump.
Past
Year Performance:
Over the last 12 months,
SXI has seen their stock price grow from $90.00 per share to $104.40,
representing a 16.00% return. However, we were lucky enough to get in near the
52 week low, and have realized greater than a 35.00% return on the position to
date.
Source:
FactSet
My
Takeaway
SXI has surpassed its
price target of $96.20, but it appears that they still have not found their
ceiling. Standex still has growth potential in their Engineering Technologies,
Electronics, and Engraving segments. These growth opportunities seem to be at
the forefront of SXI’s plans as they have dumped capital expenditures into
these specific manufacturing segments and made strategic acquisitions to
exploit evolving markets. They have also maintained FCF levels and increased
their debt to continue expanding and honing their margins. Based on these
factors, it does not appear that Standex International Corporation has reached
their peak, and may even have room to soar.
Source:
FactSet
