Value Line is regarded as the best independent research available. More than just recommendations, Value Line provides the rationale behind its picks for greater understanding.
- Don D., California
From the Survey: Cooper Industries
Cooper Industries (CBE) is a company based on the concepts of evolution and market demands. Over the years, it has been able to shift gears to meet customer needs and to continually re-focus its business as the necessities of society change. C&E Cooper Company was founded in 1833 by brothers Charles and Elias Cooper. They began manufacturing plows, hog troughs, kettles and stoves, but as the country’s landscape changed toward transportation, production followed suit by manufacturing steam engines. When momentum slowed in the steam power era, the company once again shifted, this time into gas engine technology, developing pipeline compression engines. It was during this time that it merged with Bessemer Gas Engine Company, which still accounts for the “B” in Cooper Industries stock ticker (CBE).
In the 1940s the company helped support our country’s efforts in World War II by supplying engine components for the Navy’s minesweeper fleet and Liberty ships. After the war, in order to adapt to an evolving and exploding economy, it once again revamped its product profile to include electrical products, electrical power equipment, automotive products, tools, and hardware. However, more recently, the company’s exposure to cyclical industries, such as the automotive and petroleum sector, has been on a decline, lowering those specific product weights. Instead, it is focusing on its Electrical Products Group and Energy and Safety Solutions segments. Through these operations, the company manufactures, markets, and sells electrical protection products, fuses, lighting fixtures, and distribution transformers, among other products. Customers include the industrial, government, and military areas along with retail home centers and hardware outlets.
Last year was a record breaking year for the manufacturer, as it reported sound earnings from continuing operations of $3.87 a share and revenues were up 14% from the prior year. Sales outside the United States were a major factor that supported such impressive top-and bottom-line results. Amidst an extremely challenging international backdrop, consisting of sluggish economic growth in many countries and outright recessions in others, foreign sales still managed to comprise 40% of total revenue for the year, a record for the company. The Middle East, Brazil, and China were the main contributors. Western Europe only played a minor role in the advance, taking into account the headwinds associated with European debt concerns.
While continually making it a priority to strengthen the company’s position in international markets, Cooper appears to be in a solid position to directly benefit from both a global recovery in developed regions, as well as strong expansion from emerging markets. Strong product diversification and the company’s flexible nature should ultimately allow it to maintain a high level of sales from international sources, as economic environments improve.
The Light Emitting Diode (LED) space holds a great deal of promise. We are anticipating a rise in demand for cheaper lighting options, as consumers seem to be increasing their appetite for cost-conscious, energy efficient, and environmentally friendly products and services. LEDs are used in multiple product platforms, like lighting fixtures, televisions, and touch screen displays. LEDs are appealing to consumers because of their brightness and longevity compared to fluorescent lighting. We see a tremendous opportunity in this space for Cooper to capture market share. If it is able to adjust to meet consumer demand, which the company has successfully completed many times before, and strengthen its LED product line, all told, the industrial products concern has the potential to establish itself as a leader in the lighting industry.
Cooper Industries has a stellar resume, and has successfully navigated through numerous nationwide downturns and obstacles, such as the Great Depression and the two World Wars. We think the road ahead is bright for Cooper, and its product diversity mixed with the ability to adapt to cultural changes, makes it a solid consideration for the long haul.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.