Tuesday, August 24, 2010

Leggett & Platt (LEG) Company Highlight

By Steve Cook
All American Investor

Leggett & Platt (LEG) is a manufacturer of bedding components, residential and office furniture, store fixtures, displays, die castings, specialty wire products, auto seating control cable systems. LEG’s profits have shown little growth over the past 10 years though dividends have increased at an 11%+ rate. Return on equity has been a modest varied from 10-11% earlier in the decade to 6-7% recently. The company has suffered with others producing for the consumer durables industry; however, earnings appear to have stabilized and are expected to pick up in the next couple of years because:

  1. the company is a leading manufacturer in its industry. Its well diversified customer base and solid research and development effort give it a competitive edge and improve its pricing power,
  2. management efforts to streamline the company, shedding underperforming businesses [it sold 6 in 2009],
  3. LEG has a consistent record of returning capital to shareholders through dividend increases and stock buy backs.

Leggett and Platt is rated A by Value Line, has a 35% debt to equity ratio and its stock yields over 4.8%.

Note: LEGs stock made great progress off its March 2009 low, surpassing the down trend off the June 2008 high (red line) and the November 2008 trading high (green line). In June 2010, the stock fell out of this up trend but appears to have found support; however, note the developing pennant formation similar to the VIX. The straight blue lines are the boundaries of a trading range dating from 2000. The wiggly blue line is on balance volume. The High Yield Portfolio owns a one half position in LEG (stock was sold when it neared its Sell Half Range and backed off). The High Yield Portfolio would Add to this holding at $12; the lower boundary of the Sell Half Range is at $23.

Steve Cook earned an MBA at Harvard and did post graduate work in economics and financial analysis at New York University. He earned his Chartered Financial Analysts designation in 1973. Steve has 40 years of investment experience including institutional portfolio management at Scudder Stevens and Clark and Bear Stearns. He managed a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Steve now manges Strategic Stock Investments which focuses on wealth building through strategic investments.

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Original content Steve Cook, All American Investor