FRANKLIN ELECTRIC CO INC (NASDAQ:FELE) stands out as a potential candidate for quality investors, meeting key criteria from our Caviar Cruise screen. The company, which specializes in water and fuel pumping systems, demonstrates solid profitability, efficient capital allocation, and financial health. Below, we examine why FELE aligns with quality investing principles.
Key Strengths of FELE
High Return on Invested Capital (ROIC): FELE’s ROIC (excluding cash and goodwill) is 27.27%, well above the 15% threshold for quality stocks. This indicates efficient use of capital to generate profits.
Low Debt Burden: The company’s debt-to-free cash flow ratio is 0.81, meaning it could repay all debt in less than a year using current cash flows. This reflects strong financial stability.
Profit Quality: FELE converts net income into free cash flow at a high rate, with a 5-year average profit quality of 110.27%, suggesting reliable earnings.
EBIT Growth Outpacing Revenue: Over the past five years, EBIT growth (13.75% CAGR) has been strong, signaling improving operational efficiency.
Profitability (7/10): Strong margins, with operating margin at 12.08% and improving trends in gross and operating profitability.
Financial Health (7/10): Excellent solvency metrics, including a low debt-to-equity ratio (0.01) and a high Altman-Z score (6.60), indicating low bankruptcy risk.
Valuation (3/10): Currently priced at a P/E of 24.18, slightly above industry averages, but justified by its fundamentals.
Growth (4/10): While past revenue growth has been inconsistent, analysts expect future EPS growth of 11.45% annually.
For investors seeking well-managed companies with durable competitive advantages, FELE presents a compelling case.
This is not investing advice! The article highlights observations at the time of writing, but you should conduct your own analysis before making investment decisions.