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With the Passing of Independence Day, Can These Companies Carry on the American Spirit?

 

Tuesday, July 11th, 2017

United States Steel (X): RATING = HOLD

US Steel could be a big benefactor if Donald Trump carries out his infrastructure plan and uses steel produced in the United States. The company currently has no P/E ratio, but much of this seems to be attributed to accounting policies. Price/Sales is 0.35, well below the industry average of 0.68. Price/Tangible Book value of 1.84 is more than half the industry average of 4.40. The current Price/Cash Flow does appear to be a concern at 15.66 as it is more than double the industry average of 8.36. Debt/Equity of 139.58% is a little higher than we would like to see, but if we look at the cash flow statement we can see the company has been reducing its total debt. US Steel also has a strong current ratio of 1.65, which helps reduce some concern about the high Debt/Equity. Looking forward to December 2018, estimated GAAP EPS of $1.57 would give us a target sell price of $25.91.

 

American Railcar Industries, Inc. (ARII): RATING = HOLD

American Railcar Industries designs and manufactures hopper and tank railcars in North America. This company has some strong valuation ratios as the current P/E of 11.28 is below an industry average that is not material. Price/Tangible Book Value of 1.24 also looks attractive as the industry is once again not material. ARII pays a great dividend of 4.53% and only uses 51% of earnings to pay the dividend. The balance sheet looks alright, as Debt/Equity of 102.21% is a little high, but a current ratio of 3.32 is very strong. Problems for the company lie within its growth, as sales have fallen 28% over the last 12 months and EPS has fallen 47% during the same time frame. Looking forward to December 2018, estimated GAAP EPS of $2.54 gives us a target sell price of $41.91.

 

Union Pacific Corp (UNP): RATING = SELL

The current valuations seem to be a little expensive for UNP. The current P/E of 20.5 is favorable to an industry average that is not material, but is still little higher than I like to see. Current Price/Sales of 4.3 is well above the industry average of 0.22. Price/Tangible Book Value looks decent at 4.4 as it compares favorably to an industry average that is not material. Price/Cash Flow of 13.6 also looks expensive as the industry average is 0.76. The Debt/Equity looks reasonable at 76.2%, but the current ratio of 0.93 and the quick of 0.73 should be watched closely. Looking forward to December 2018, estimated GAAP EPS of $6.44 gives us a target sell price of $106.26.

 

SAIC, Inc. (NYSE:SAIC); RATING = SELL

This company provides technical, engineering, and enterprise IT services for the U.S. Military, the U.S. Defense Logistics Agency, the National Aeronautics and Space Administration, the U.S. Department of State, and the U.S. Department of Homeland Security. It’s Price/Sales of 0.72 is very strong compared to an industry average of 6.17. Price/Cash Flow of 14.8 looks decent as it is below the industry average of 19.41. The current P/E of 19.9 is also below the industry average of 46.44, but is a little more expensive than I would like to see. The current Price/Tangible Book Value is a big question mark as it is currently not material. A current ratio of 1.42 looks good, but Debt/Equity of 308.9% is a big red flag. Looking forward to January 2019, estimated GAAP EPS of $4.11 gives us a target sell price of $67.82.

 

American International Group (NYSE:AIG): RATING = BUY

AIG currently has an extremely high P/E of 182.47. This could be due to accounting or catastrophe losses related to insurance. The Price/Sales of 1.09 compares favorably as the industry average is 1.26 and Price/Tangible Book Value of 0.78 is also a strength as it is below the industry average of 1.63. Price/Cash Flow of 11.6 is a little expensive as it is above the industry average of 9.89. Debt/Equity of 41.5% looks good and there is no current ratio for this company since it is in the insurance business. Looking forward to December 2018, estimated GAAP EPS of $6.06 gives us a target sell price of $99.99.

 

American Eagle Outfitters Inc. (NYSE:AEO): RATING = BUY

This company is part of the retail industry that has been beaten down as of late. The valuation ratios look phenomenal for AEO. The current P/E of 10.45 is below the industry average of 18.41. Price/Sales of 0.55 compares favorably to the industry average of 0.89. The industry has a Price/Tangible Book Value of 4.8, which is more than double AEO’s 1.88. Price/Cash flow of 5.55 also looks appealing as it is below the industry average of 8.20. The company pays an extraordinary dividend of 4.46% and it only uses 45.7% of its earnings to pay that dividend. The balance sheet is a major strength for American Eagle as there is no debt and the current ratio of 1.82 provides a good amount of liquidity. Looking forward to January 2019 estimated GAAP EPS of $1.21 gives us a target sell price of $19.97.