Hurco Companies, Inc. Cheap, cash-rich and the potential for growth $HURC

Tobias CarlisleStocks1 Comment

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Hurco Companies, Inc. (HURC) is an interesting stock in the All Investable Screener. With a market capitalization of just $196 million it is one of the smaller stocks in that screener, but its $62 million in net cash makes its enterprise value even smaller again at $134 million. Operating earnings of $25 million put HURC on an acquirer’s multiple of just 5.37x. With a PE of 11.3x and a free cash flow to enterprise value yield of 16 percent, HURC is cheap on any number of measures.

HURC is an industrial technology company founded in 1968 and is headquartered in Indianapolis, Indiana. It manufactures computerized machine tools for the companies in metal cutting industry primarily in North America, Europe, and the Asia Pacific. The company provides general purpose computerized machine tools, including vertical machining centers and turning centers, machine tool components and computer control systems for metal bending press brake machines. It serves precision tool, die, and mold manufacturers, independent metal parts manufacturers, and specialized production application in aerospace, defense, medical equipment, energy, automotive/transportation, electronics, and computer industries. HURC sells its products through independent agents and distributors, as well as through direct sales personnel.

Its F-Score (financial strength) at 7/9 is excellent, and it’s commensurately not financially distressed with a Z-Score of 4.65. With an M-Score of -2.76 it is also decisively not a manipulator.

Insiders have typically been buyers over the last few years.

HURC is an industrial technology company operating in a single segment. It designs and produces computerized machine tools, featuring its proprietary computer control systems and software, for sale through its own distribution network to the worldwide metal cutting market.

The principal factors contributing to its financial performance are as follows:

  • The market for machine tools is international in scope. HURC has both significant foreign sales and significant foreign manufacturing operations. During fiscal 2014, approximately 62% of its revenues were attributable to customers in Europe, where it typically sells more of its higher-performance, higher-priced machines. Approximately 10% of its revenues were attributable to customers in Asia, where it sells more of its entry-level, lower-priced machines, and where it also encounter greater price pressures. HURC sells products through more than 100 independent agents and distributors in countries throughout North America, Europe and Asia. It also has its own direct sales and service organizations in China, France, Germany, India, Italy, Poland, Singapore, South Africa, the United Kingdom and certain parts of the United States. The vast majority of its machine tools are manufactured to primarily by its wholly-owned subsidiary in Taiwan, Hurco Manufacturing Limited (HML). Machine castings and components to support HML’s production are manufactured at its facility in Ningbo, China.
  • During the third quarter of fiscal 2013 HURC acquired the machine tool component business of LCM S.r.l, an Italian designer and manufacturer of electro-mechanical components and accessories for machine tools. HURC uses LCM components in one of its lines of machining centers.
  • HURC’s sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies—primarily the Euro, Pound Sterling and Chinese Yuan—in the countries in which those customers are located. Its product costs are incurred and paid primarily in the New Taiwan Dollar and the U.S. Dollar. Changes in currency exchange rates will have a material effect on its operating results and consolidated balance sheets as reported under U.S. Generally Accepted Accounting Principles. For example, when the U.S. Dollar weakens in value relative to a foreign currency, sales made, and expenses incurred, in that currency when translated to U.S. Dollars for reporting in our financial statements, are higher than would be the case when the U.S. Dollar is stronger.

On an acquirer’s multiple of 5.4x, HURC is an attractively valued company. It will be beholden to the business cycle and its earnings are likely to be affected by the strength or weakness of the US dollar, but it looks like a good long-term bet because it is conservatively managed and has the potential for continued growth.

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One Comment on “Hurco Companies, Inc. Cheap, cash-rich and the potential for growth $HURC”

  1. You could also look at Roundtop machinery in Taiwan (1540.TW) in Machine tooling. Trading at 1.5x EV/EBIT multiple and paying 9% dividend yield. Many deep value in more developed Asian markets (Taiwan, Korea, HK), but certainly need patience. Disclosure: I am long 1540.

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