Trading places: another view.

From time to time, it's interesting to look at ourselves from someone else's window, and at-bat this time is how the industry appears to the investment community. So, aided with the free access to public firms' financials, I examined a few such firms in our industry and their attractiveness on the stock exchanges.

For simplicity's sake, this discussion is limited to Atchison Casting, Citation and Intermet. The summary information that follows was gleaned from each firm's annual reports/news releases, web sites and conversations with financial analysts.

It's no surprise to find that the limited number of foundry stocks remain in the shadows, for a variety of reasons. As one analyst said, "There's no pizazz. You mention foundries to investors and their eyes glaze over." However, four of the five stocks I inquired about were rated highly, with near agreement that they were undervalued. The fact that each is an industry consolidator is attractive, say analysts, and each received good marks for management direction and stability.

Since its single-plant incorporation seven years ago, Atchison Casting Corp. [1-year price per earnings (P/E) ratio of 12.30] has grown to 16 (varied metals and processes) foundries with 4500 employees. Last year, it tallied sales of $245 million (33% gain) and, when not accounting for insurance proceeds, nearly doubled net income to $9.7 million.

Recent news includes the acquisition of Sheffield (U.K.) Forgemasters Group (a foundry, forge and rolling company), preceded by the acquisitions of Jahn Foundry Corp. (iron shell mold) and the casting div. of Beloit Corp. (iron, steel and nonferrous) in 1997. In its recently reported third quarter, net income was 35% over last year at $3.9 million.

Said Alex Barton of Ingalls & Snyder: "Atchison has found undermanaged foundries with excess capacity, acquired them at a low price and has expanded their sales." Barton also said the recent Sheffield acquisition (a "very significant" U.K. foundry group) adds $170180 million to Atchison's mix, with another 25% possible next year. In addition to its broad capabilities, the firm's "very important" geographic diversification also was highlighted by Barton. "Ten percent of its castings are sold outside of the U.S., and another 40% are sold to firms that export," he said.

Citation (13.43 P/E) has continued the rapid acquisition trend that started long before it went public in '94. It now has 19 manufacturing divisions and 6500 employees and spans virtually all cast metals groups and processes, including forging. It notched sales of $649 million last year (up 33%), and boosted net income 39% to $23.2 million.

Recent news includes a joint venture with Caterpillar to build and operate a steel foundry in Mexico and the acquisitions of Amcast Precision Products (aluminum and steel investment caster for aircraft/aerospace) and Dycast (aluminum diecaster). Its recently reported second quarter showed net income was up $8.4 million from last year, and a new single quarter earnings per share record was set at $0.47.

Interstate-Johnson Lane's Gregg Lucas (who covers both Citation and Intermet) praised Citation's market strategy, noting that the firm utilizes its unique position to move programs from different metals and processes as needed. As an example, he said Citation's sales with Caterpillar have increased 34 times ($70 million expected this year) since 1995.

With its acquisition of Sudbury (Wagner Castings' parent) last year, Intermet (12.28 P/E) now has 6500 employees at 23 operating locations (11 foundries) in North America and Europe. Last year, the firm's net sales grew 52% to $813 million, although net income declined by 7% to $40 million. It recently reported record first quarter results in sales ($224 million) and net income ($11.3 million).

Lucas described Intermet's strategy as serving automotive OEMs as "the premier iron foundry organization." He also said that CEO John Doddridge has corrected the product assimilation, economic and delivery woes of several years ago. In addition, the fruits of the firm's increased marketing focus would begin appearing later this year. Like Citation, he said Intermet is meeting or exceeding earnings targets and both firms performed above the Dow average last year. Prudential's Philip Fricke added: "What matters to me is: can the company do something no one else can, including the auto companies, and does it have the resources to add value?" Intermet is one of his top three stocks.

While none of the analysts would relate these stocks to those in comparable industries, they say these firms can offer an attractive opportunity for certain investors willing to bet on the "ugly duckling."

And so while none of these public firms have captured the attention to the degree that "foundry" is being widely spoken at Wall Street cocktail parties, they are getting the word out that metalcasting is a dynamic, credible industry that is adapting to the times.