Wednesday, April 13, 2016

Seeking Alpha: GEA Group Looking To Milk Food And Beverage For All They're Worth

Within the industrial and process automation space, there's usually a pretty significant divide between the giants like Siemens (OTCPK:SIEGY), Honeywell (NYSE:HON), Emerson (NYSE:EMR), ABB (NYSE:ABB), and Rockwell (NYSE:ROK) and the much smaller (often private) companies that generate less than $1 billion in revenue and tend to focus on particular end-markets or product categories (like sensors, controls, valves, and so on). That makes Germany's GEA Group (OTCPK:GEAGY) a rare commodity - a publicly-traded company in the automation space that, although not small at over $5 billion in revenue and $9 billion in market cap, is nevertheless highly specialized and a notably different sort of business.

I like GEA Group's focus on the food and beverage industry, as I expect growth in dairy, processed, and packaged food products will outstrip population growth and generate a solid underlying level of demand for the company. I also like the company's efforts to address its cost structure and generate margins in the double-digit range that the large players routinely produce.

What I don't like is the valuation. The perceived advantages of the company's focus on the more stable food/beverage segment are already reflected in the valuation, as well as some buyout potential. With discounted cash flow, ROE/P/BV, and margin/EV/rev all suggesting a fair value in the mid-to-high $40s, this is a name worth monitoring but it is hard to argue for it is a compelling buy candidate today.

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GEA Group Looking To Milk Food And Beverage For All They're Worth

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