FINNING INTERNATIONAL INC. $24 - Toronto symbol FTT

FINNING INTERNATIONAL INC. $24 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.9 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.finning.com) sells, rents and repairs heavy equipment, such as tractors, bulldozers and trucks, made by Caterpillar Inc. (New York symbol CAT). Finning’s major customers are in the mining, forest products and construction industries in Western Canada, the U.K. and South America.

In July 2011, Caterpillar bought Milwaukee based Bucyrus International, which makes equipment that is used for mining and in the development of the oil sands.

In May 2012, Finning paid Caterpillar $305.8 million U.S. for Bucyrus’s distribution and support businesses in South America and the U.K. The company will buy Bucyrus’s Canadian operations for $159.2 million U.S. in October 2012.

Meanwhile, Finning’s revenue rose 19.2% in the three months ended June 30, 2012, to $1.8 billion from $1.5 billion a year earlier. The new Bucyrus operations contributed $50.5 million to that increase. Higher prices for oil and other commodities also spurred strong demand for new equipment and maintenance services.

Earnings fell 0.7% to $81.3 million, or $0.47 a share. A year earlier, Finning earned $81.9 million, or $0.48 a share. Bucyrus contributed $0.03 a share to the latest earnings.

Costs related to installing a new computer system cut Finning’s earnings by $0.07 a share. However, once this new system is in place, it should make the company’s parts-distribution business more efficient. Finning aims to complete this process by the end of 2012.

The company borrowed the cash it needed to buy the Bucyrus assets. That pushed up its long-term debt from $762.6 million at the end of 2011 to $1.3 billion on June 30, 2012. Even so, Finning’s debt is a manageable 32% of its market cap. It also held cash of $111.3 million, or $0.65 a share.

The company will probably earn $1.95 a share in 2012. The stock trades at just 12.3 times that forecast. The $0.56 dividend yields 2.3%.

Finning is a buy.

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