Tuesday, February 11, 1997

Welcome to our latest Foolish feature, the Daily Double. Each market day, we'll be presenting a stock that has doubled in the past six months. For more information on this column, please read "What is the Daily Double."

Consolidated Graphics (NYSE: CGX)
Phone: 713-529-4200
Price (2/11/97): $31 7/8

HOW DID IT DOUBLE?

Consolidated Graphics discovered the secret of printing money, or something like that. The stock swooned last February when the company announced charges to clean up a large acquisition that didn't fit Consolidated's standard modus operandi. But after dipping to $8, the shares roared back to the mid-teens before getting caught in the summer market correction. Since late September, however, Consolidated Graphics has gone nearly straight up, doubling on the Nasdaq before jumping to the NYSE in late January.

And for good reason. For the second quarter ending September 30, 1996, the company reported that sales rose 78%, to $34.5 million versus $19.3 million for the same quarter last year. Earnings per share jumped 60% to $0.20 per share from $0.13 in last year's second quarter. Recently announced third quarter numbers confirmed the trend, as Consolidated's sales and earnings came in 10% above even the stellar second quarter numbers.

Like the name says, the company is taking advantage of an industry ripe for consolidation by buying privately owned printing companies generating between $2 and $15 million in annual revenues. Consolidated purchased nine printing operations in fiscal 1996, with recent acquisitions in Richmond, Virginia; Long Beach, California; and Raleigh, North Carolina. The company's annual run-rate now stands at $155 million.

BUSINESS DESCRIPTION

With corporate offices in Houston, Texas, Consolidated Graphics provides general commercial printing throughout the U.S. Formed in 1985, the company has expanded in recent years through acquisitions and now operates 18 printing companies in 14 markets, with three shops in Denver and three in Houston. Consolidated typically leaves existing management in place when it buys a printer, thus maintaining business relationships and quality service.

Each print shop operates as an independently managed subsidiary with its own sales, estimating, customer service, prepress, production, and postpress operations. Each offers general multicolor commercial printing services related to annual reports, brochures, training manuals, direct mail pieces, catalogs, and promotional material. These jobs tend to be recurring.

Corporate headquarters provides the subsidiaries with centralized cash management, financial reporting, and certain administrative services. Consolidated aims to improve overall operating efficiencies through master purchasing arrangements and the management support and technological advantages of a larger organization.

Founder, CEO, and Chairman Joe Davis owns about a third of the company.

FINANCIAL FACTS

 Income Statement
12-month sales:     $125 million
12-month income:    $8.1 million
12-month EPS:       $0.67
Profit Margin:       6.48%
Market Cap:         $391 million

Balance Sheet
Cash:               $2.11 million
Working Capital:    $20.14 million
Long-term Debt:     $34.7 million

Ratios
Price-to-earnings:   47.6
Price-to-sales:       3.1

WHERE TO FROM HERE?

Analysts estimate that Consolidated will earn $0.78 a share for fiscal 1997, which ends March 30th, and $1.02 a share for 1998. At the current levels, the stock is trading at about 47 times trailing earnings, with year-over-year growth promising to top 100% if the company just hits the ever-rising estimates.

Still, this year-over-year growth is misleading due to the one-time charges in 4Q 1996. The '98 numbers point to 40% annualized growth over the next five quarters and a not-so-appealing PEG ratio of 1.05. The high-side estimate for annualized growth over the next five years is 33%.

Consolidated, however, has so far mastered the art of printing more money without printing a lot of stock (shares outstanding increased by just 12% last year). Dean Witter Reynolds' analyst James Dougherty has estimated that there are 7,000 U.S. printers in the company's target range, and CEO Davis seems to have quite an appetite for acquisition. So even though Consolidated Graphics looks pricey at the moment, this is one to keep an eye on.

-Louis Corrigan (RgeSeymour)

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