Tuesday, June 19, 2018

Yokogawa Electric Looks Undervalued, But Consider The Reasons Why

The last year has seen a strong recovery in a variety of industrial markets, but Japan's Yokogawa Electric (YOKEY) (6841.T) hasn't seen all that much benefit. One of the top players in distributed control systems (or DCS), Yokogawa's dependence upon petro-sector capex and its substandard margins have both created issues and led to lackluster performance. While the conglomerate nature of the process automation sector complicates comparisons (there's a lot more going on at Honeywell (HON) and Siemens (OTCPK:SIEGY) than process automation), Yokogawa's performance relative to companies like Emerson (EMR), Schneider (OTCPK:SBGSY), Rockwell (ROK), and HollySys (HOLI) hasn't been all that impressive, though it has at least outperformed industry-laggard ABB (ABB) over the past year.

Yokogawa shares do look undervalued on what I believe are reasonably conservative expectations, but the company's reliance on the petro-vertical is a long-term risk in my mind, and I cannot get that excited about the level of execution management has demonstrated over the years, with relatively weak margins and ROICs being the norm.

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Yokogawa Electric Looks Undervalued, But Consider The Reasons Why

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