Linamar update November 21, 2017

The report for Linamar is updated and rated Strong Buy at $68.50. The price has declined from about the $80 range after the release of Q3 earnings. Earnings per share were down 12% in Q3 whiles revenues per share were up 6%. The company indicated that earnings per share were actually up 9% on an adjusted basis but was not able to fully explain the source of the adjustments because part of it came from a boost to the prior year earnings related to a confidential payment from a customer to be released from a contract. Some of the adjustment related to variations in foreign exchange.

Overall the company appears cheap at 8.5 times earnings and they project double digit growth for 2018. However the market may perceive bigger risks from a NAFTA termination and in general is unwilling to pay a higher multiple for a company viewed as cyclic and with auto sales possibly at a cyclic high.

While, there are always risks, the company appears to merit a Strong Buy rating based on its numbers. As always there are many details in the report and subscribers are encouraged to consider the full report and not just the rating. I plan to add somewhat to my position today.


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