Briggs & Stratton is the world's largest producer of 3-25 horsepower air cooled gas engines. Roughly 79% of the companies 1999 revenue was from the U.S. and the rest International. The dividend yield is 3.5%.
- Current P/E is 5.3. Five year company average is 15.6.
- Current price to book is 1.8. Five year company average is 3.3.
- Current price to sales is 0.5. Five year company average is 1.0.
- From 1994 - 1999 ROE has ranged from 17.5 - 29 with an average of 22.75.
- Analysts are forecasting a five year growth rate of 8%.
Using the end of 1999 values of 15.77 book value, 4.52 EPS, payout ratio of 25%, debt/equity of 31%, and an average (past six years) ROE value of 22.75%, and assuming an 8% growth rate then in five years the earnings per share of BGG are expected to be somewhere between 6.64 and 7.89. Adding dividends and assuming a P/E of 10 (close to mid-way between current P/E of 5.3 and 5 year company average of 15.6) then the price of BGG should be somewhere between 73.75 and 86.24. With these assumptions and the current price then a return of 17.5 - 20.5% could be expected per year over the next five years.
- Federal and state governments are creating stricter emission standards which will cause BGG to improve their engines.
- Long-term other forms of engines (electric, etc.) may replace the gasoline engine.
Disclosure: I currently own stock in Briggs & Stratton.