Sunday, May 7, 2017

Air Liquide Adds Value As Lincoln Electric Moves Into Recovery Mode

Lincoln Electric (NASDAQ:LECO) has continued to appreciate since my August 2016 piece, as investors have piled into a wide assortment of companies leveraged to an industrial recovery and potential infrastructure stimulus. Volume has actually turned up for Lincoln in recent quarters, with only a handful of major end-markets still weighing on results, and the prospects for sales growth over the next few years are good.

Management continues to do a good job of expanding into alloy welding and automation, but the announced acquisition of Air Liquide's (OTCPK:AIQUY) welding business is a significant opportunity to improve its European business, expand its alloy and automation opportunities, and drive real improvements in margins while making life even more challenging for Colfax (NYSE:CFX) in its core market.

At a mid-teens multiple to forward EBITDA, I cannot call these shares "cheap." But then, the implied total return in the high single-digits from my discounted cash flow model for a company that has steadily gained share, generated double-digit ROICs, and organically created new growth opportunities isn't exactly out of line either. A slowdown in the industrial recovery (whether real or imagined by the Street) is certainly a threat to the share price, but this is the sort of name you want to add to on pullbacks.

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Air Liquide Adds Value As Lincoln Electric Moves Into Recovery Mode

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