ENERFLEX LTD. $10.51

ENERFLEX LTD. $10.51 (Toronto symbol EFX; TSINetwork Rating: Extra Risk) (403-387-6377; www.enerflex.com; Shares outstanding: 79.2 million; Market cap: $817.3 million; Dividend yield: 3.2%) rents and sells equipment and services for natural gas production—from compression and processing plants to refrigeration gear and power generators.

In the three months ended March 31, 2016, Enerflex’s revenue fell 40.3%, to $271.7 million from $451.1 million a year earlier. Cash flow remained positive, but it fell sharply, to $11.5 million, or $0.15 a share, from $38.8 million, or $0.49.

Contributions from the company’s Latin American and Middle Eastern businesses boosted revenue, but weaker sales in the U.S. and Canada offset those gains.

Enerflex’s debt of $489.4 million is a somewhat high, but manageable, 58% of its market cap. It also holds cash of $160.3 million, or $2.02 a share.

Cost cuts will keep cash flow high

Low oil and gas prices continue to hurt the company’s backlog. Enerflex booked $65.0 million of orders in the latest quarter, down from $140.6 million a year earlier. Its backlog now stands at $334.9 million, down 53.2% from $715.1 million a year ago.

In response to the lower bookings, the company has reduced costs, including laying off 276 of its 2,376 employees since the start of this year. These measures— plus its international growth prospects, in the Middle East and elsewhere—should give Enerflex cash flow of $1.02 a share in 2016. The stock trades at a low 10.3 times that estimate; the shares yield 3.2%.

Enerflex is a buy.

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