Gathering New Information about Stocks, Health, and Sports

         When thinking of industries to invest your capital in, the Pollution & Treatment Control region, while not heavily commercialized, may able to increase your profits exponentially. Regarding the companies which fit into this industry, the larger capitalization businesses such as ESCO Technologies and CECO Environmental may stand out in terms of low price to earning multiples and solid ROEs. Nevertheless, one other name, Donaldson Company (DCI) really stands out with its superior fundamentals relative to, not only its industry rivals, but major producer competitors such as MFRI and Pall.

         While an investor may recognize that Donaldson is part of the Pollution & Treatment Control industry, there may be some confusion of what kind of product or service Donaldson actually creates. In reference to Yahoo! Finance, there is nice, clear statement which illustrates that "Donaldson Company, Inc., through its subsidiaries, engages in the design, manufacture, and sale of filtration systems and replacement parts worldwide." After reading this statement, while the actual product information and revenue sources are not completely provided, the most important line from this analysis is the vertical control this company has from the beginning plans to the execution of sales. Having this independent control over a company is an absolute benefit to a business, especially one with a strong management team. In addition, regarding the next few lines on more specific details of this company, Donaldson regards its business through the use of its Engine Products and Industrial Products. Constructing these filters which are used "in the construction, mining, agriculture, and transportation markets" or more notable areas such as with "gas turbines and various air filtration systems for diverse applications, including computer disk drives," the examination of these industries allows a solid stream of sales and profit from its consumers: OEMs. In addition, looking at Donaldson's history regarding share price, the company has performed strongly since first trading public in 1988 and has only had one correction of more than 25% (1998) during this duration of nearly 19 years. Furthermore, since the immediate future shows no revolutionary substitute to the service Donaldson provides, there should be no skepticism regarding the fundamentals this company should produce in the next five years.

         Mentioning the fundamentals, while it is true the company Donaldson has may be a solid one, as an investor you may realize that many companies have similar business plans, and thus, there may be a possible alternative to purchasing Donaldson. While such analysis is truly thought provoking and elaborate, regarding numbers, Donaldson absolutely has an edge over its competitors. With strong revenue growth over the past two fiscal years and a more detailed quarterly revenue growth average over the past year of about 10%, Donaldson has been able to continue to find sales with both old and new original equipment managers. In addition, its revenue per share of 21.1, according to Capital IQ, is significantly higher when compared to competitors such as CECO Environmental and Pall. Moreover, Donaldson has also managed to keep both revenue costs and operating expenses at a minimum, as over the last year, Donaldson has experienced net income quarterly growth close to 11%, handily beating out rival Pall who has actually seen decreasing earning growth over the past few quarters. Continuing to look at the figures, the ever so important price to earnings ratio also works in strong favor with Donaldson. The forward multiple of about 19.8 is more than marginally below not only the industry's rate of 28.8, but below its rivals such as MFRI as well as its trailing ratio of 23.4--a definite positive indicator. Even more lucrative, this company has a PEG ratio over the next five years of 1.68 which easily beats out the only other competitor to report such a number in Pall. Regarding more abstract multiples, Donaldson's enterprise value to revenue, enterprise value to EBITDA, and price to sales of 1.76, 11.75, and 1.68 respectively are all lower when compared to, not only the industry's average, but stronghold rival Pall whose respective numbers follow out as 2.25, 13.21, and 2.09. When understanding these key differences between the multiples of the various companies, it is clear, in large regard, that Donaldson can assume the role of being undervalued. Nevertheless, while a company may have strong numbers from revenue collection of its products and services, complete weight must not always be put on these variables. A company can easily be put into a right situation where all factors lead to positive returns, but such a scenario may only be apparent in the short term. What a company needs is a strong management team to help keep the company competitive during both the good and bad times. In the case of Donaldson, led by CEO William Cook, the management team does a superb job in taking care of its business. With a return on equity of more than 25% and a return on assets nearly at 12%, with the strong capacity to reinvest its earnings, there is no other company of the three aforementioned in this article with higher numbers. The strength of this highly important statistic allows Donaldson to continue its growth as it has been doing over the past 19 years. In addition, Donaldson not only has this strong management team, but it also very solvent and has a bit of cash. With a debt to equity ratio of 0.32 and a current ratio of 1.61, which are both below competitors CECO and Pall, and having both positive operating and leveraged cash flow which, only competitor Pall can attribute to, there should be no reason to at least think of committing some capital into this company. Thus, after examining the evidence provided by Donaldson and its rivals, there is a tremendously strong case to become a shareholder of this corporation.

         While the aforementioned statistics may sound enticing to you as an investor, when looking at the current share price, some skepticism may still linger. With a current 50 and 200 SMA below the current price and a recent upgrade which boasted this stock to a near 52 week high, the argument for possibly being overbought is an understandable one. However, Donaldson also contains a high short ratio of 6.5, and has only marginally followed the S&P 500 52 week change of 13% with its own 2.5% increase. Now with a beta of more than 1.6, and the strong assumption the S&P will provide for another strong year, even with the possible high share price, there is still a lot of potential to receive nice capital gains from this price. Thus, as both the fundamental and technical analysis shows, Donaldson is a great buy in both the long and short term.

-Dennis Biray
February 23rd, 2007