Toromont eyes mining rebound, Enerflex taps revived natural gas market

TOROMONT INDUSTRIES LTD (Toronto symbol TIH; www.toromont.com) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. It also makes refrigeration systems through its CIMCO division. The company completed the spinoff of Enerflex Ltd. (see below) in July 2011. Shareholders received shares of both the new Toromont Industries and Enerflex. In the three months ended March 31, 2014, Toromont’s revenue fell slightly, to $311.7 million from $313.1 million a year earlier. However, earnings rose 4.4%, to $18.6 million, or $0.24 a share, from $17.8 million, or $0.23. Toromont sold more product-support services, which are more profitable than equipment sales. The company’s $130.3 million of long-term debt—down from $169.0 million a year ago—represents 6.2% of its market cap. Toromont raised its quarterly dividend by 15.4% with the April 2014 payment, to $0.15 a share from $0.13. The shares now yield 2.2%.

Canadian stocks: Enerflex appoints new head of international division to combat cost overruns

ENERFLEX LTD. (Toronto symbol EFX; www.enerflex.com) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration equipment and power generators. The company focuses on three markets: U.S. and Canadian shale gas; Australian natural gas from coal beds; and conventional Middle Eastern natural gas, most of which gets converted to liquefied natural gas (LNG) for shipping worldwide. In the quarter ended March 31, 2014, Enerflex’s revenue fell 5.9%, to $332.4 million from $353.3 million a year ago. Demand remains strong, but the year-earlier quarter included especially big contributions from large projects in Oman and Australia. Earnings per share fell sharply, to $0.05 from $0.20, mostly due to cost overruns on international developments. However, Enerflex has appointed a new head of its international division who will work to prevent similar problems. Enerflex booked $237.9 million of orders in the latest quarter, up 25.7% from $189.3 million a year earlier. Its total backlog now stands at $801.9 million, up 32.9% from $603.2 million a year ago. The company holds cash of $219.2 million, or $2.72 a share, and has low debt. The shares yield 1.8%. In the latest edition of Stock Pickers Digest, we look at the prospects for improvement in Toromont’s major market, mining, and how the outlook for natural gas affects Enerflex’s primary markets. We also examine the earnings forecasts for both stocks. We conclude with our clear buy-hold-sell advice on these two stocks. (Note: If you are a current subscriber to Stock Pickers Digest, please click here to view Pat’s recommendation. Be sure to log in first.) If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Do you try to buy resource or resource service stocks before the commodity they depend on rises in price? How do you determine the time to buy? Have you had success with this approach?

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