Market Overview

Commercial Vehicle Group: Class All The Way... Class 8, That Is

Price: $11.40
Forward P/E: 8
Earnings Growth: 50%
Projected Sales Growth: 14%
Market Cap:$327.62 million

Why It's Featured: Earnings jump this year; global expansion.

Danger Zones: Volatile earnings history; highly leveraged; still very small.

Commercial Vehicle Group, Inc., (NASDAQ: CVGI) together with its subsidiaries, designs and manufactures cab related products and systems for the commercial vehicle markets worldwide.  It offers seats and seating systems comprising mechanical and air suspension seats, static seats, bus seats, heavy truck seats, and construction and other commercial vehicle seats; and office seating products for various office environments, such as emergency services, call centers, receptions, studios, boardrooms, and general office, as well as electronic wire harnesses and panel assemblies.

The company also makes trim systems and components for the interior cabs of commercial vehicles, which consist of A-Pillars, B-Pillars, door panels, and interior trim panels; instrument panels; headliners/wall panels; storage systems; floor covering systems; sleeper bunks; grab handles and armrests; and privacy curtains.

In addition, it offers cab structures, sleeper boxes, bumper fascias, fender liners, body panels, and structural components; and mirrors, windshield wiper systems, and a range of controls and control systems for window lifts, door locks, and electric switch products.

The company sells to original equipment manufacturers (OEM) for various end market vehicle applications, including local and long-haul commercial trucking, bus, construction, mining, agricultural, military, general industrial, marine, municipal, recreational, and specialty vehicles.  Commercial Vehicle Group, Inc. was founded in 2000 and is headquartered in New Albany, Ohio.

Here are few numbers that caught my attention: in 2009, the stock sold for 40 cents a share.  By 2011, it was trading at $19.60.  Sales in the fourth quarter of last year jumped by 43%.  Sales from its global OEM truck market alone were up 71%.  And finally, earnings should go to $1.38 this year, well ahead of the 89 cents reported at the end of 2011.

Earnings are black and red for CVGI.  In 2004, the first year it went public, they were $1.19, went to $2.69 by 2006, then dropped to a negative 15 cents, only to plunge to minus $9.86 in 2008 (hence the 40 cents a share).  By 2010, they were back in the black, at 24 cents, followed by 93 cents.  Now analysts see 29 cents for the first quarter of this year (next earnings announcement will be on April 25) compared to 12 cents last year in the first.  For the second quarter, the consensus from 3 analysts is for 39 cents vs 19 cents in the second of 2011.  For the full year, look for $1.38, then for 2013, $1.58 (with a range of $1.50 to $1.70).  For the near future, at least, things look solid.

That's because demand keeps growing, especially in the U.S. where management thinks Class 8 trucks (the big 18 wheelers) will see production runs of 280,000 to 290,000 units.  Global OEM production will most likely remain flat to up 5% for 2012.  Analysts think full year sales should reach $952.05 million for 2012, up from $832.02 million or 14.4%.  Next year, they're projecting $1.03 billion, another 8.02% rise.

All this sounds great.  That's why the stock is up dramatically from $5.60 where it traded in the middle of last year.  But there's some other numbers that suggest caution may be warranted.  One of them is debt the company carries.  It's $250 million or 95% of capital.  That means a couple of things.  The first is that this company is highly leveraged.  That's great when interest rates are low and orders are flowing.  Margins expand.  Return on equity grows.  Everything is helped by leverage. (For more stock ideas, see www.theonlineinvestor.com)

As every investor knows, leverage works both ways.  When things are bad, they're compounded into badder as the cost of debt is a burden rather than a contributor.  When interest rates rise, so does the cost of carrying the debt.  Too much debt can be any company's downfall.  It's a red flag not be ignored at CVGI.

Having waved the flag, there's more good news to report.  The company is expanding internationally, adding new business in China (where things are slowing at the moment).  One Chinese producer, Foton Motor, accounts for only $10 million annually now, but analysts think that OEM may grow to $30 million when it fully ramps.  The company is also opening new manufacturing plants in Beijing, and Saltillo, Mexico, to meet customer demand.  That means a loss of 100 jobs in North Carolina as some production moves offshore.


- Essential Numbers:
- Trailing P/E: 17
- Price to sales ratio: .4
- Price to book: 26.3
- Operating margin: 6.04%
- Profit margin: 2.24%
- Return on equity: 38%
- Total cash: $87.96 million
- Cash per share: $3.12
- Debt to Equity: 1900%
- Current ratio: 2.71
- Book value per share: 45 cents
- Beta: 3.5
- 52 week change: -33.18%
- Shares outstanding: 28.17 million
- Float: 23.91 million
- Held by insiders: 12.63%
- Held by institutions: 77.9%
- There is no dividend

Some numbers just pop out, ones like a Beta of 3.5 or Debt to Equity of 1900%.  Others give comfort, ones like high insider ownership and plenty of cash.  As with many small companies, there's a lot to like here and plenty to fear.  For Aggressive investors, this is exactly the kind of stock they like to investigate, maybe even buy.

- Company Web site: www.cvgrp.com

- Ted Allrich
March 29, 2012

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Ted Allrich is Chairman of the Board of BofI Holdings Inc. and Bank of Internet USA. He is also the Founder of The Online Investor (www.theonlineinvestor.com), a site that offers investment ideas and in

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