Slammed By Weak Energy Markets And Margin Deleverage, Is MOCON On The Way Back?

It has been a while since I've reviewed tiny, illiquid MOCON (NASDAQ:MOCO), a specialist manufacturer of sensitive gas-monitoring equipment that is largely used in the food and beverage industries. The past 15 months have been rough for MOCON, as currency hurt its sizable European business and the sharp contraction in the North American energy sector kneecapped the hoped-for growth from its industrial analyzer business. All told, the shares are down about 15% from when I last wrote, which actually isn't bad considering 2015 revenue missed my target by around 12% and the operating margin was four points lower than I'd expected.

As ABB (NYSE:ABB) recently mentioned, the food/beverage end-market is a healthy one all things considered, and there is ongoing interest in testing/rolling out new packaging options that increase shelf life and "shelf appeal". What's more, and I cross my fingers as I type this, I think there may be reasons to hope that the energy market weakness has bottomed out and could become a tailwind for the company (or at least stop hurting results).

I want to see more from MOCON. I think there are significant opportunities in areas like pharmaceuticals, environmental/worker safety, and perhaps even markets like electronics. There are a lot of small companies in these areas and I think MOCON would better serve its investors over the long term if it was a little more aggressive on M&A (whether to acquire products/technologies or distribution into new markets). I've cut back my margin leverage assumptions and trimmed back my revenue growth expectations, but 6% revenue growth and about one point of long-term FCF margin improvement can still support a fair value above $18.

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Slammed By Weak Energy Markets And Margin Deleverage, Is MOCON On The Way Back?