FINNING INTERNATIONAL INC. $18 - Toronto symbol FTT

FINNING INTERNATIONAL INC. $18 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 170.9 million; Market cap: $3.1 billion; Price-to-sales ratio: 0.7; Dividend yield: 2.4%; SI Rating: Above Average) sells, rents and repairs tractors, bulldozers, trucks and other heavy equipment made by Caterpillar Inc. Finning’s major customers are mainly in the western Canadian mining, forest-products and construction industries. It also operates in the U.K. and South America. Many of Finning’s customers have cut or delayed spending on new equipment because of the weak global economy. In response, Finning has cut 750 of its 12,000 employees since the third quarter of 2008. The layoffs should lower the company’s annual costs by $200 million by the end of 2010. In 2009, Finning’s revenue fell 20.9%, to $4.7 billion from $6.0 billion in 2008. Earnings rose 36.3%, to $130.8 million, or $0.77 a share, from $96.0 million, or $0.55 a share. However, if you exclude severance costs and other unusual items, earnings per share fell 44.4%, to $0.85 from $1.53. Finning’s long-term debt of $991.7 million is a moderate 32% of its market cap. It holds cash of $197.9 million, or $1.16 a share. Rising prices for oil and other commodities are starting to spur demand for Finning’s heavy equipment and services. In February 2010, it won a 10-year contract to supply mining equipment to Imperial Oil’s new Kearl oil-sands project. Finning did not say how much this deal is worth. The company also won a 10-year, $400 million U.S. deal from Chile’s state-owned mining company. The stock trades at 20.2 times the $0.89 a share that Finning is likely to earn in 2010. Finning is a buy.

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