CLARCOR Sets the Bar High

This article is part of our Rising Star Portfolios series.

Often the best companies are ones you've never heard of yet provide essential functions to society. I've profiled Landauer (NYSE: LDR  ) , which provides radiation monitoring, and am excited to introduce you to another great company, CLARCOR (NYSE: CLC  ) . This company filters out the goo and pollutants from truck engines, industrial machines, and even the water you drink. Rewards have been plenty: Back in 2000, shares of CLARCOR traded hands at $10, and they now trade at $43 -- a four-fold increase over a time when the broader market was flat. That wonderful performance might be hard to replicate, but the future for CLARCOR is still bright.

The business
Headquartered in Franklin, Tenn., CLARCOR's business is filtering fluids and gases for truck engines, locomotives, mining equipment, buildings, factories, airplanes, and many other applications. Its filters help expensive machines run more smoothly, efficiently, and cleaner. At the company's core is its Baldwin Filters business, a leader in heavy-duty truck engine filters. This is a high return business, but even better is that since filters are consumed and regularly replaced, it is very predictable. All told, engine and mobile filtration accounts for just less than 50% of revenue. The other half is filtration for industrial and environmental uses, which span the gamut from factory filtration to home air filters. Finally, there is a small packaging business, which makes cases for batteries and other small goods.

Leadership and competition
Competition in the filtration business is strong, but CLARCOR is fortunate to have strong market positions. For example, in the heavy-duty truck business CLARCOR competes with Cummins (NYSE: CMI  ) , Donaldson (NYSE: DCI  ) , and Pall (NYSE: PLL  ) , and the four companies have the lion's share of the market. Another plus for CLARCOR is its wide product portfolio; it supplies perhaps the industry's widest range of filtration equipment, giving customers a one-stop shop for all their filtration needs. There's always the threat of lower-quality, cheaper filtration products overhanging this space, but at the high end, customers demand the best, and CLARCOR fits that bill.

Financials and outlook
CLARCOR has delivered steady results over the past five years, with strong margins and returns on assets. But growth is really expected to pick up this year. CLARCOR expects 10% to 12% sales growth in 2011 at a 14.5% to 16% operating margin. Clearly, the recovery and cost-cutting during the downturn are beginning to bear fruit on the bottom line, but another contributor is China as the rapidly growing country demands high-quality air filters.

Metric

FY 2010

FY 2009

FY 2008

FY 2007

FY 2006

Revenue $1.01 billion $908 million $1.06 billion $921 million $904 million
Revenue Growth 11.4% (14.3%) 15.0% 1.9% 3.5%
EBIT Margin 14.3% 11.8% 14.1% 14.1% 13.9%
Return on Assets 9.0% 6.9% 11.0% 11.1% 11.2%

Source: Capital IQ, a division of Standard & Poor's.

Foolish bottom line
This is a fine company, one that will grow steadily and won't spring many surprises. CLARCOR makes the world cleaner and run more efficiently, saving energy. Plus, it has industry-leading capabilities and expertise in filtration. Combined with solid market positions, a wide product lineup, and management focused on economic value added, CLARCOR should perform well.

The value hunter in me would have liked to own CLARCOR in 2000 when it traded for about 13 times earnings, but I feel unfashionably late to this party as CLARCOR now fetches 21 times earnings. Given my bearishness on the economy and stock market, I'm going to hold off buying CLARCOR, but I'll be watching intently for a better opportunity to own this pleasant company.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).

Andrew Sullivan, CFA, owns shares of no companies listed above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1478602, ~/Articles/ArticleHandler.aspx, 9/20/2014 12:29:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement