Miller Industries, Inc. (NYSE-MLR) Executive Summary
Miller Industries, Inc. (NYSE-MLR) Executive Summary
Presentation Date: October 26, 2017
Analysts: Kelsey McHugh Quintus Yang
Recommendation: Hold
Business Overview
Miller Industries, Inc. is the world’s largest manufacturer of towing and recovery equipment. Founded in 1994 and headquartered in Ooltewah, TN, Miller has a strong market leadership and diverse product portfolio. Miller Industries has eight manufacturing operational facilities, with five of those being in the United States and the remaining three facilities in Europe, and operates in the US, Canada, Mexico, the Pacific Rim, the Middle East, South America, Europe, and Africa. Miller’s products can be broken down into three main categories: wreckers, car carriers, and trailers. Wreckers are used to recover and tow disabled vehicles and other equipment. Car carriers are specialized flatbed vehicles that can be used to transport new vehicles, disabled vehicles, or even industry equipment over longer distances. Transport trailers are double-decker transport vehicles that can comfortably transport between six and seven cars. Miller purchases its raw materials, such as aluminum, sheet steel, and petroleum, from various third party vendors. The raw materials are then bent and shaped into the body of the wrecker or car carrier, and then the products are distributed through either independent distributors or prime contractors. In the past year, Miller Industries has completed the expansion of one of its Pennsylvania facilities, and is continuing to work on the expansion of one of its Tennessee facilities.
Key External Drivers
Miller Industries is subject to the volatility in commodities such as raw materials, sheet steel, crude oil, and petroleum. Also, two key economic drivers are the number of motor vehicle registrations as well as the number of vehicle accidents, because the more vehicles on the road, the more number of accidents and with the more accidents, there is a higher demand for tow trucks.
Macroeconomic and Industry Review
Although the capital requirement to enter the tow truck manufacturing industry, Miller Industries remains an industry leader due to their diverse brand portfolio, product offerings, distribution network, and increased efficiency in the newly expanded production facilities. Miller competes for business with its competitors on the basis of product innovation and quality, price, and service. Also, the tow truck manufacturing industry is highly dependent on interest rates and fuel prices.
Financial Analysis and Valuation
During the past few years, the profitability ratio has been very steady. The gross margin is around 10% and the net margin is around 2.5%. But the company’s ROE and ROA has been constantly improving. According to Dupont analysis for ROE, all three factors contributed to its growth. A liquidity analysis shows company has good financial health. Greenblatt ratio also improved year over year, with declining speed in recent two years. A technical analysis shows that the company’s 20-day and 200-day moving average are both in an upward trend, primarily due to the potential effect of tax reform. For valuation, we use DCF analysis and comparable company analysis. By using DCF analysis, we got a price of $29.20. By using comparable company analysis, we got a price of $41.90. There are no direct comparable companies for this company, and they are trading at a higher multiple than MLR since they are bigger and have a diversified product portfolio. Thus, we believe comparable price is little overvalued. HOLT Lens gives a warranted price of $51.25 because they have a positive look on the future CFROI the company’s capital expansion projects.
Recommendation
Although we are concerned about the cyclicality of Miller Industries along with the expiring proprietary patents within the upcoming year, we realize that Miller’s well-diversified portfolio, low long-term debt, and experienced management team are all key factors in operating a successful business in this industry. Because of this, we decided to hold the remaining 200 shares of Miller Industries, Inc. in our portfolio.