Mueller Industries Inc (NYSE:MLI) Passes Stringent Quality Investing Screen

For investors aiming to assemble a portfolio of durable, high-achieving companies for the long term, the principles of quality investing offer a valuable framework. This method centers on finding businesses with lasting competitive strengths, sound financial condition, reliable earnings, and the capacity to produce good returns on capital. A structured method to find these candidates is through a stock screener based on measurable quality factors, such as the "Caviar Cruise" screen, which selects for companies with a record of steady revenue and profit increase, high returns on invested capital, good free cash flow production, and acceptable debt.

One company that now meets this strict set of filters is Mueller Industries Inc (NYSE:MLI). The maker of copper, brass, aluminum, and plastic products displays a financial picture that matches the central ideas of quality investing.

A Base of High Profitability and Capital Effectiveness

Central to quality investing is the search for companies that are good at using capital. The main gauge for this is Return on Invested Capital (ROIC), which shows how well a company produces earnings from the capital it has put to work. The Caviar Cruise screen sets a demanding standard, needing an ROIC (leaving out cash, goodwill, and intangibles) over 15%.

• Mueller Industries greatly passes this level, reporting an ROICexgc of 51.4%.
• This high number shows that for each dollar put into the main business, Mueller makes more than fifty cents in profit. It is a strong sign of operational skill, pricing ability, and a lasting competitive edge in its field.

This notable capital effectiveness is supported by high profit margins. The company's operating margin of 21.5% and profit margin of 18.1% rank with the best in the machinery industry, doing better than over 93% of similar companies. Also, these margins have been increasing in recent years, a main filter in the more demanding version of the Caviar Cruise screen, which looks for proof of gaining profitability over time.

Sound Financial Condition and Reliable Earnings

Quality investors value financial durability. A company with a very strong balance sheet is more ready to endure economic declines and fund future increase without needing outside money. The Caviar Cruise screen checks this by examining the Debt-to-Free Cash Flow ratio, with a result under 5 seen as good.

• Mueller Industries is notable with a Debt/FCF ratio of 0.0, meaning it has no net debt.
• This clean balance sheet, marked by a high Altman-Z score of 15.9, means the company has no default risk and has great financial room to act.

Also key is the reliability of a company's earnings. The screen uses the Profit Quality measure, the ratio of free cash flow to net income, to confirm profits are becoming actual, usable cash. A five-year average above 75% is needed.

• Mueller Industries shows very good cash conversion, with a five-year average Profit Quality of 100.9%.
• This means that, on average, it has changed 100% of its accounting profits into free cash flow. This reliable earnings stream supplies the capital for dividends, share repurchases, or strategic spending without stressing finances.

Good Historical Increase Path

While prior results do not assure future outcomes, a record of increase is a main sign of a business's health and market standing. The Caviar Cruise base screen looks for a minimum 5% compound annual growth rate (CAGR) in both revenue and EBIT (earnings before interest and taxes) over five years.

• Mueller Industries records a strong EBIT increase (5Y CAGR) of 32.5%.
• This major growth in operating profit, which exceeds its revenue growth, highlights the company's capacity to turn sales into still higher profitability, a characteristic of a quality business benefiting from scale or pricing ability.

Valuation and Basic Summary

A detailed basic analysis report for Mueller Industries gives it a strong total rating of 8 out of 10. The report affirms the notable measures covered:

• Profitability is rated a high 9/10, led by industry-best returns and margins.
• Financial Condition gets a full 10/10 score, showing the company's lack of debt and sound liquidity.
• Growth is rated 7/10, noting good past performance in both revenue and EPS, with analysts predicting continued increase ahead.

On valuation, the report shows a varied but fair view. While its P/E ratio seems high alone, it is actually lower than most of its industry peers and the wider S&P 500. When growth forecasts are included, the valuation seems more fair, particularly given the company's better profitability and financial soundness.

A Candidate for More Study

For investors using a quality-centered, buy-and-hold method, Mueller Industries Inc displays a valuable profile. It joins high capital effectiveness, a very strong debt-free balance sheet, reliable cash-producing earnings, and a good history of profit increase. It represents the kind of financially sound and operationally skilled company that quality screens like the Caviar Cruise are made to find.

Interested in finding other companies that satisfy these demanding quality criteria? You can review the present results of the Caviar Cruise screen yourself here.

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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. Investing has risk, including the possible loss of principal. You should do your own study and talk with a qualified financial advisor before making any investment choices.