Mueller Industries: Strong Buy On Infrastructure And Housing

Mueller Industries: Strong Buy On Infrastructure And Housing

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Mueller Industries is a 100-year-old sleeper industrial machinery small-cap in the HVAC, refrigeration, and plumbing space.

Although boosted by copper prices, Mueller’s revenue growth, profit margins, and returns on equity and capital are compelling.

Underfollowed and underbought, the market deeply discounts the stock price.

Mueller’s opportunities for continued growth from infrastructure spending and housing starts, plus an attractive downside risk profile, suggest a strong buy.

natatravel/iStock via Getty Images Mueller Industries, Inc. (NYSE: MLI ) is a US-based, international housing and commercial construction small-cap play.

In my first report on Mueller Industries, I put the company and its common shares through my market-beating, data-driven investment research checklist of the value proposition, shareholder yields, returns on management, valuation multiples, and downside risk. The resulting investment thesis: The bipartisan $1 trillion infrastructure bill signed by President Joe Biden in November 2021, combined with the current housing shortage, should create incremental growth opportunities for Mueller Industries. Their enduring, quality operations and below intrinsic value stock price exhibit a strong buy rating. Unless noted, all data presented is sourced from Seeking Alpha and YCharts as of the market close on March 11, 2022; and intended for illustration only.

A complimentary Glossary of Investing Terms is provided in a linked Google Sheet for article brevity and quick reference. The glossary is exclusive to Seeking Alpha readers. It is recommended to open the sheet in a separate window or tab. For convenience, a link back to SA is provided. Boring Industrial Staple Beats The Market

MLI is a dividend-paying small-cap stock in the industrials sector’s machinery industry. Its three segments, Piping Systems, Industrial Metals, and Climate, serve the heating, ventilation, air-conditioning, refrigeration, and plumbing markets in North America, Great Britain, Asia, and the Middle East. The company was founded in 1917 and is headquartered in Collierville, Tennessee.

Mueller Industries’ Multi-Channel Product Partners Mueller Industries, Inc. Ultimately, investing in individual common stocks should aim to beat the benchmark indices over time. For example, the below chart demonstrates how MLI far outperformed its broader sector, represented by the Industrials Select Sector SPDR Fund ETF (NYSE: XLI ), its small-cap peers per the iShares Russell 2000 ETF (NYSE: IWM ), and the mid- and large-cap markets per the SPDR S&P 500 ETF Trust (NYSE: SPY ). Moreover, the chart represents the last six months as growth stocks got hammered.

My value proposition elevator pitch for Mueller Industries: Commodity prices and construction business cycles notwithstanding, MLI is the relatively safe stock of a boring industrial staple. Data by YCharts Shareholder Yields Four Times The 10-Year

As part of my due diligence, I average the total shareholder yields on earnings, free cash flow, and dividends to measure how a targeted stock compares to the prevailing yield on the 10 Year Treasury benchmark note.

I target an earnings yield greater than 6 percent or the equivalent of a P/E multiple below 17 times. With trailing one-year earnings per share of $8.25, the earnings yield for MLI was 14.99%.

I target a free cash flow yield or FCFY of 7 percent and higher or the equivalent of fewer than 15 times the inverted price-to-free cash flow multiple. Based on $4.93 free cash flow per share, the FCFY for MLI was 8.95%.

Although not a dividend investor by definition, I prefer dividend-paying stocks for compensation in the short term while waiting for capital gains to compound over time. The trailing dividend yield for MLI was 0.94%, supported by a conservative 6.34% payout ratio. The dividend yield may appear modest; however, the board recently raised the dividend by a whopping 92.3%. And there is more room for dividend raises based on the payout ratio.

Next, I take the average of the three shareholder yields to measure how the stock compares to the prevailing yield on the 10 Year Treasury benchmark note. The average shareholder yield for MLI was 8.29% vs. 2.00% for the 10-Year. Arguably, equities are deemed riskier than U.S. bonds. However, securities that reward shareholders at more than four times the government benchmark, such as MLI, favor owning the stock instead of the bond.

Remember that earnings and free cash flow yields are inverses of valuation multiples, and each suggests MLI as undervalued. I’ll further explore valuation later in this report.

My weighted shareholder yields rating for MLI: Bullish. Data by YCharts Outstanding Growth, Margins, and Returns

Now, let’s explore the fundamentals of Mueller Industries, uncovering the performance strength of its senior management.I am biased toward established growth instead of executive guidance and sell-side analyst projections […]

source Mueller Industries: Strong Buy On Infrastructure And Housing

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