Unique Fabricating is a small company out of Auburn Hills, MI, operating primarily in the auto parts industry with additional sales in the appliance, HVAC, and water heater industries. And while it's been a public company for only a little more than a year, it's expected to grow earnings at 21% per year for the next 5 years. It also pays a nice dividend that should grow with its earnings while it continues to pay down debt.
Unique Fabricating, Inc. engineers and manufactures multi-material foam, rubber, and plastic components utilized in noise, vibration, and harshness (NVH), acoustical management, water and air sealing, decorative, and other functional applications. It supplies die cut non-metallic materials and components, which are used in applications, such as air and water sealing, insulation, NVH performance, and BSR conditions; thermoformed and compression molded products, including HVAC air ducts, door watershields, evaporator liners, console bin mats, fender insulators, and others; and fusion molded products comprising exterior mirror seals, cowl-to-hood seals, cowl-to-fender seals, and other products for NVH management and body sealing applications. The company sells its products to original equipment manufacturers and suppliers in the automotive, appliance, water heater and heating, ventilation, and air conditioning industries in North America. Unique Fabricating, Inc. was founded in 1975 and is headquartered in Auburn Hills, Michigan.
(Summary) (Company) (Chart)
| 5 June 2016 Price $13.68 1yr Target $15.75 Analysts 2 Dividend $0.60 Payout Ratio 92.30% 1yr Cap Gain 15.13% Yield 4.38% 1yr Tot Return 19.51% P/E 21.11 PEG 1.01 Beta --- | EPS (ttm) $0.65 EPS next yr $1.13 Forward P/E 12.11 EPS next 5yr 21.00% 1yr Price Support $23.73 Market Cap $132.70 Mil Revenues $150.90 Mil Earnings $5.70 Mil Profit Margin 3.77% Quick Ratio 1.60 Current Ratio 2.30 Debt/Equity 0.69 | 1yr RevGR --- 3yr RevGR --- 5yr RevGR --- 1yr EarnGR --- 3yr EarnGR --- 5yr EarnGR --- 1yr DivGR --- 3yr DivGR --- 5yr DivGR --- ROA 5.70% ROE 13.30% |
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Operations
Unique is engaged in the engineering and manufacture of multi-material foam, rubber, and plastic components utilized in noise, vibration and harshness, acoustical management, water and air sealing, decorative and other functional applications. The Company combines a long history of organic growth with some more recent strategic acquisitions that diversifies both product capabilities and markets served.
Unique serves North American automotive and heavy duty truck, appliance, water heater and heating, ventilation, and air conditioning (HVAC) markets. Sales are conducted directly to major automotive and heavy duty truck, appliance, water heater and HVAC OEMs, or indirectly to OEMs through the Tier 1 suppliers of these OEMs. The Company has its principal executive offices in Auburn Hills, Michigan and has sales, engineering and production facilities in Auburn Hills and Concord, MI, LaFayette, GA, Louisville, KY, Evansville, In, Ft. Smith, AR, Murfreesboro, TN (through January 2016), Bryan, OH, Monterrey, Mexico, and Queretaro, Mexico.
Unique derives the majority of its net sales from the sales of foam, rubber and plastic automotive products using a variety of manufacturing processes including die cutting, compression molding, thermoforming, fusion molding and RIM molded polyurethane. By sealing out air noise and water intrusion, and by providing sound absorption and blocking, Unique’s products improve the interior comfort of a vehicle, increasing perceived vehicle quality and the overall experience of its passengers. Unique’s products improve thermal characteristics, reduce noise, and prolong the equipment life of appliances, water heaters and HVAC systems.
Appliance, HVAC, and Water Heater Industries
Unique is a leading provider of fabricated, non-metallic components to a diverse group of OEMs and tiered suppliers in the appliance, HVAC, and water heater industries. These sales represented approximately 16.0% of net sales for the year ended January 3, 2016. These components are primarily manufactured from foam, adhesives, fiberglass, rubber and board-back material. The company has extensive materials, engineering and fabrication expertise and deliver custom designed, innovative solutions to their our customers. Their component solutions primarily consist of products used in gasketing, heat deflection, packaging, insulation, water seals, noise reduction and vibration control.
Demand for these end-market products is largely driven by the health of the housing sector. The National Association of Home Builders forecasts that there will be approximately 1.3 million new housing starts in 2016, approximately 13% more than 1.1 million new housing starts during 2015. Unique believes that the appliance, HVAC, and water heater industries are currently primed for favorable growth.
The US appliance industry is forecast to show modest growth through 2017, as new and existing home sales, as well as home improvement spending, both of which have a direct impact on appliance industry sales, continue to show upward momentum. According to the latest Appliance Magazine’s Annual US Appliance Industry Forecast, forecasted unit shipments for this industry in the United States are expected to grow at a compounded annual growth rate of 3.5% through 2017 to reach approximately 46.4 million units per year, which would put the industry close to its peak sales years of 2004 – 2006. The company believes that these benefits will increase the demand for their products from their clients such as GE and Whirlpool.
The HVAC and water heater industries are also poised to benefit from the gains in the housing and home improvement markets. According to the same Appliance Magazine Industry Forecast, shipments of heating and cooling units in the US are expected to grow at a compounded annual growth rate of 2.4% through 2017, while shipments of residential and commercial water heaters are expected to grow at a compounded annual growth rate of 2.6% through 2017. Unique believes this trend will increase the demand for their products from their clients such as AO Smith, Rheem and Trane.
Products
Unique’s primary products are identified by their manufacturing processes and fall into the following: die cut products, thermoformed/compression molded products and fusion molded products (see below).
Die Cut Products
Unique is primarily a supplier of die cut non-metallic materials and components. These products have been the Company’s core business and they have developed over time through the company's technical expertise, broad customer base, strategic manufacturing footprint, diverse material selection and strong quality and delivery performance. Unique leverages its market position in die cutting by offering more highly engineered, higher value products and processes such as thermoforming, compression molding, fusion molding and RIM molded polyurethane.
Thermoformed/Compression Molded Products
In 2005, Unique began expanding its product offerings to include thermoformed and compression molded products. Unique leveraged its position as a manufacturer of core die cut products to gain traction with customers who wanted a single-source solution for other related products, such as thermoformed, compression molded and fusion molded components. The company recently added RIM polyuerethane components to its portfolio.
Fusion Molded Products
In 2008, Unique began to expand its product portfolio to include fusion molded components through an exclusive supply relationship with Chardan Corp. In February 2014, Unique purchased the Chardan Business, bringing the fusion molding capability inhouse. Fusion molding is an innovative foam molding process used to manufacture precise three dimensional components that are lightweight and provide excellent thermal and acoustic performance. Primarily used for NVH management and body sealing applications, the fusion molded products are complementary to Unique’s other product lines and give Unique additional options to provide light-weighting and NVH management solutions to its customers.
My Perspective
This is an interesting company in the auto parts industry but it doesn't have much of a track record. It went from private to public just a little over a year ago. But it has a very nice dividend and an expectation of earnings growth of 21% over the next few years. Add in the fact that it has great coverage of its liabilities, moderate debt and an expectation that it could easily support its target price with a PEG less than one, and I think I ought to have a nice position in this company.
I understand it's speculative and it doesn't have the track record of a dividend aristocrat, but it has a great start on possibly becoming one some day. That said, I think it's worth throwing a few dollars at this company, establish a position, and monitor the company for success. If it continues to perform as expected I expect to increase my position over time. If not, I expect I'll eventually simply sell it off and move on. But I think there's something more going on here and that makes me want to own this stock.
I expect to start a position in the near future. As always, I'll start with a small position and then add to that position through dividend reinvestment and open market purchases (no options are offered with this security at this time).
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