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Coverage Initiation: Douglas Dynamics, Inc. (PLOW)
Value Line has initiated coverage of Douglas Dynamics, Inc. (PLOW). The company, which can trace its roots back to the years just after World War II, is one of the leading designers, manufacturers, and marketers of snow and ice control equipment for trucks. It offers snow plows, sand and salt spreaders, and related parts and accessories under the WESTERN, FISHER, and BLIZZARD brands. Through its network of more than 720 distributors, Douglas’ products are primarily sold in the United States and Canada, but can also be found in Europe and Asia.
In the late 1940s and early 1950s, Fisher Engineering and Western Products were companies engaged in the development and production of some of the earliest truck-mounted snowplows. Fisher’s first plows were designed to fit on Willys Jeep vehicles, the only small four-wheel-drive trucks available at the time (Willys were used extensively during World War II, and after the conflict, civilian models were produced). Western Products began as a small welding shop in Milwaukee, Wisconsin. The first plow developed by the company was for Jeeps and small trucks. In order to help offset the seasonality of snow plows, Western also manufactured a line of small construction equipment, which included cement mixers and compact rollers. Over the next few decades, the two companies competed against one another, and both completed a number of acquisitions, in order to diversify their product offerings. However, in 1984, the two companies merged, creating Douglas Dynamics. The other businesses were sold off and the company focused entirely on the growing snowplow market. During the next several years, ownership of Douglas changed hands on several occasions and, in 2004, it was sold to an investment group led by private equity firm Aurora Capital Group.
On May 4, 2010, Aurora spun off the plow maker and Douglas Dynamics completed its initial public offering. At that time, 10 million shares were sold to the public at an average price of $11.25 per share. A secondary offering occurred on May 17, 2011, when five million shares were sold at $14.50 per share. Both underwriting syndicates were led by Credit Suisse (CS).
Today, Douglas Dynamics is a major player in the snowplow market and its three brands can be found around the world. Due to seasonality, business is light during the first calendar quarter, but typically picks up materially thereafter. In 2010, it achieved sales of more than $175 million and net income of almost $7 million. Looking ahead, assuming an average amount of annual snow fall, Douglas’ near- and long-term prospects appear solid.
As for the stock, in our view, its main draw is its healthy dividend yield. Its first quarterly payment occurred in September, 2010, and the company has already raised the payout on two occasions. The equity had a recent yield of more than 5.5%, and we estimate that additional payment increases will occur over the next few years. Interested subscribers are encouraged to await our ongoing Douglas Dynamics coverage for more information.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.