Jul 10, 2006
- Based on our
analysis of corporate governance, recent growth, long-term growth, growth
projections, stock ownership, and valuations, we believe Nautilus, Inc. to be
undervalued...
Nautilus, Inc
(NLS) develops, produces, and markets fitness products.
Key
Information:
Fundamental:
Sector:
Consumer Goods
Industry:
Sporting Goods
Liquidity:
Market
Capitalization: $487 Million
Average daily
volume (3-month): 573 Thousand Shares
Closing Stock
Price: $14.85
Risk
Proxies:
52-week high /
52-week low: 2.19
Beta
(3-month): 1.42
Debt/Equity:
0.05
Profitable:
Yes
Valuation:
Price/Sales:
0.74
Price/Book:
1.91
Price/Earnings:
26.57
Price/2007
Analyst Earnings Estimates: 12.69
Forecast
Horizon: 3 months
Fundamental
Analysis
Overview
Based on our
analysis of corporate governance, recent growth, long-term growth, growth
projections, stock ownership, and valuations, we believe Nautilus, Inc. to be
undervalued.
Corporate
Governance
Institutional
Shareholder Services rates NLS's corporate governance as better than 90% of
S&P 600 companies.
Recent
Growth
Revenues for
Q1 2006 came in 1.2% above revenues for Q4 2005, and 18.3% above revenues for
Q1 of 2005. EPS for Q1 2006 was $0.16, up from $0.06 in Q4 2005, and down
from $0.28 for Q1 2005.
Revenue and
earnings growth has been moderate. We view it as neither a positive or a
negative.
Long-Term
Growth
Sales have
grown at an average rate of 15.5% during the past five years.
Unfortunately, growth has been nearly nonexistent during the past three years.
The weak
growth rates of the past several years is bearish.
Insider
Transactions
Insider
trading in the stock has been mixed. Net, over 300,000 shares have been
sold; however, the majority of transactions have been buys.
Net, we do not
feel that the insider transactions are either a bullish or bearish sign.
Institutional
Transactions
Recent
institutional transactions have been positive. Net, 2.2 million shares
have been bought. Gross, 14.9 million shares were bought, and 12.7
million shares were sold. Favorably, buying was concentrated within a few
large institutions. Specifically:
- Snyder Capital Management bought 2.6 million shares.
The position was last reported to be a reasonably large 1.4% of their
total portfolio size.
- UBS Global Asset Management increased their position
size by 1.9 million shares to 2.6 million shares.
- Wells Capital Management bought 1.2 million shares.
- ICM Asset Management bought 750 thousand shares,
increasing their position to a total of 1.7 million shares. The
position is now 2.2% of their total portfolio size.
We view the
institutional buying as a positive for the stock.
Shares Sold
Short
Roughly 11
million shares were sold short as of the 12th of June; this
represents approximately 20 days of average volume, and 37% of the outstanding
float. If the stock rises substantially, it may cause short-sellers to
cover their positions. If this happens, it could prompt an acceleration
of the positive trend.
Analyst
Forecasts
Analysts
forecast 2006 EPS of $0.90, and 2007 EPS of $1.17. The spread of these
estimates are $0.23 and $0.45, respectively. Forecasts are for 17.5%
annual EPS growth over the next five years.
During the
past two months, analysts have increased their estimates for this FY and the
next FY.
- This fiscal year: From $0.89 to $0.90
- Next fiscal year: From $1.15 to $1.17
During the
MRQ, EPS came in at $0.16, $0.01 above consensus estimates.
Six analysts
rate the stock as a Strong Buy, three rate it as a buy, five rate it as a hold,
and one rates it as a sell.
Strong
long-term growth estimates, increasing estimates, and generally positive
ratings as bullish indicators for the stock. The wide spread of analyst
estimates is a bearish indicator.
Catalysts
Although the company has been troubled by manufacturing
difficulties, several analysts believe that these issues will be largely
resolved over the coming year. Meaningful development on this front would
likely cause NLS shares to rise.
Valuations
After
reviewing the recent analyst reports, we believe that the bullish analysts have
stronger arguments than the bearish analyst. Given improving the improved
earnings that analysts expect as a result of improved operations, we believe
that NLS is undervalued. The stock is trading at a forward P/E ratio of
12.7, and a forward P/EG ratio of 0.725; these ratios are both low.
Technical
Analysis
Our technical
analysis indicators are neutral for NLS.
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Key
Levels
Buy:
Market
We are
fundamentally bullish on the stock
Target:
Until fundamentals change
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