Focus Article: Belden Inc. (BDC)

Belden Inc. (BDC) $38.40

The Company:

With a witty and apt slogan of “Sending All The Right Signals”, Belden is a 110 year old company that sells cable, connectivity and networking products. Its cable division includes copper, coaxial and fiber optic cables and accounts for more than 70% of revenue. The other part of the revenue pie is shared almost equally between the connectivity and networking products divisions. With a focus on growth, the company has acquired several companies and brands over the years and derives about half its revenue from the United States with the rest split between Canada (11%), Asia (16%), Europe, Middle East and Africa (21%) and Latin America (5%). Belden grew  its emerging markets division (Brazil, India and China) from $195 million in revenue in 2009 to $287 million in 2011.

For such an old company, Belden has a young CEO who was appointed CEO in 2005 before he turned 40. The growth in revenue and margins since his appointment have been impressive as you can see below.

Belden Growth 2005-2011

Belden Growth 2005-2011

Business Statistics & Financials:

For the full year 2011, Belden generated revenue of $1.98 billion, representing year-over-year revenue growth of 23%. Earnings grew 66% to $2.40/share thanks to expanding margins. For the second quarter of 2012, the company reported revenue of $484 million, up 4% YoY and earnings of $0.92/share, up from $0.72/share in Q2 2011. The company also posted record gross profit margins of 31.4% and operating margins improved 260 basis points to 12.1%.

However the company cut its full year guidance for both revenue and earnings and now expects to earn $3/share at the mid-point of its forecast on revenue of $1.95 to $1.97 billion.

The company trades for 8 times EBITDA and less than 13 times projected 2012 earnings.

Competitors:

Stock Symbol Mkt Cap EV/EBIDTA P/B Operating Margin
Belden BDC 1.72B 8.22 2.46 9.65%
Corning GLW 19.01B 6.23 0.89 20.32%
General Cable Corp BGC 1.52B 6.14 1.06 3.92%
Amphenol APH 9.89B 12.04 4.39 19.03%
TE Connectivity TEL 15.54B 7.24 2.01 13.07%

Insider Buying:

One insider purchased stock on the open market over the last six months as listed below. You can view a list of all insider transactions for Belden here.

Owner Relationship Date Cost # Shares Value($) Total Shares
Lance C. Balk Director 31-Aug 34.15 3,000 102,444 71,972

Risk Factors:

Belden has been growing rapidly through a number of acquisitions and now owns several companies and brands. As the company, grows management focus might get stretched too thin and they might also end up paying too much for acquisitions.

Belden is also susceptible to economic risk. The company saw its revenue drop nearly 30% to $1.41 billion in 2009 and posted a net loss for the year. While the company has done a great job of growing both revenue and earnings over the last two years, second quarter 2012 revenue of $484.4 million came in below expectations and the stock was downgrade by Stifel Nicolaus on growth concerns. The company also revised its full year guidance downwards to a range of $1.95 to $1.97 billion when compared to prior guidance of $1.98 to $2.02 billion.

Conclusion:

Belden has done an outstanding job of increasing its revenue, margins and geographic footprint over the last 7 years. The company does have net debt of $217 million on the balance sheet but the amount of debt appears to be manageable based on operating cash flow of over $170 million in 2011. The company is retiring higher interest debt, buying back shares, trades for over 8 times EBITDA and increased its operating margins to 12% in Q2 2012.

My key concern with Belden is the drop in second quarter revenue both from its own forecast and on a year-over-year basis. Full year revenue guidance was also revised downwards. The company is most likely impacted by an economic slowdown in both China and Europe.

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