GEO Investing

Although both GeoBargains NN Inc. (NNBR) and Manitex International (MNTX) will be impacted by a weak Euro, the market seems to be ignoring the positive affect QE in Europe could have on the company’s operations. GeoInvesting maintains its bullish stance on both companies at current levels, but realizes that it may take time for this bullish thesis to play out.

Yesterday, via premium tweet, we stated:

“Believe yesterday’s drop in $NNBR of 30% is overdone, as was the case on Q3 2014 numbers before recovering to previous highs.”

Our tweet from November 6, 2014:

“Our newest GeoBargain is $NNBR. We are long. Pull back on Q3 results was, and continues to be, a gift.

The stock was trading at around $21 at this time and recovered to near $28 prior to Q4 earnings.  We believe shares dropped due the company’s forecasted 2015 foreign currency adjusted revenue of  $670 million to $690 million, which are negatively impacted by weakness in the Euro vs the Dollar.  Analyst estimates were around $708 million before being adjusted to $690 million.

30% Sell-off in NNBR Shares Overdone

We believe the near 30% sell-off in NNBR shares is overdone given analyst adjusted revenue estimates and the company’s revenue guidance is roughly 3% off prior estimates.  EPS estimates also decreased to $1.91 from $2.10, and while certainly not a positive event, it is not an event that should call for a 30% decline in the stock, especially given that 2015  sales and  EPS  are  still expected to  grow 41% and 48%, respectively.  We believe shares will once again eventually recover, but that some volatility in shares could ensue until the decline in  the Euro stabilizes.

In MNTX’s case, the company acquired PM Group S.p.A. (“PM”) in January.  MNTX reported that PM generated around $100 million revenue and $9+ million EBITDA (based on EBITDA % in line with MNTX’s) in 2014.  Many used PM’s estimated revenue and EBITDA for 2014 in US dollar terms as the basis for projecting its operating results in 2015 and beyond.  The 2014 estimate, however, was based on a Euro exchange rate of $1.35 which indicates PM generated around 74 million Euros revenues and 7 million Euros EBITDA.

If we translate PM’s Euro denominated operating results back to US $ at the current exchange rate of $1.06, the US $ equivalents become revenues of approximately $78 million and EBITDA of $7.4 million, or around $22 million less US $ denominated revenue and $1.6 million less EBITDA.  We do not think investors should judge MNTX and its acquisition of PM based on what could prove to be a temporary plunge in the value of the Euro.  The real issue is whether PM is a solid and growing business in local currency terms and we believe it is.

In terms of  GeoPowerRanking (GPR),  NNBR is strong at 4, where MNTX had carried a GPR of 8 just 6 days ago, however, strong EPS comps are now not expected until Q3 2015 where MNTX will have a GPR of 6.

To see the remainder of NNBR and MNTX coverage, please go here.

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