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Growth & Income

Todd Bunton

Briggs & Stratton Corportion

BGG

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Briggs & Stratton Corporation (BGG - Snapshot Report) recently delivered better than expected results for its fiscal third quarter. The company reported modest sales growth across both of its major business segments, which helped drive margins higher.

Analysts are projecting solid double-digit earnings growth from Briggs & Stratton over the next two years. It is a Zacks #2 Rank (Buy) stock.

The company also pays a dividend that yields 2.1%, and shares are trading at a discount to their peers on almost every metric.

Company Description

Briggs & Stratton Corporation is the world's largest producer of gasoline engines for outdoor power equipment. The company is headquartered in Milwaukee, Wisconsin and has a market cap of $1.1 billion.

Third Quarter Results

Briggs & Stratton reported third quarter financial results on April 28. Earnings per share came in at $1.02, beating the Zacks Consensus Estimate of $0.94.

Third quarter net sales were $720.3 million, a 3.7% increase over the same quarter in 2010. This also came in better than expected, with analysts expecting sales of $707.0 million.

Sales improved in both the Engine and Power Products segments. The Engines segment reported a 4.3% sales increase due in large part to higher shipment volumes and slightly higher engine pricing. Sales in the Power Products segment rose 4.8% thanks to higher volumes of snow throwers and ZTRs.

Margins expanded in the third quarter, leading to strong operating income growth. The gross margin improved from 20.2% of sales to 20.8%, while the operating margin rose from 9.9% to 10.9%. This led to a 13.7% increase in operating income year-over-year.

Outlook

Following the solid third quarter, management reiterated its 2011 guidance of $1.13 to $1.35 per share on net sales growth of 2% to 5%.

Despite the modest sales expectations, analysts are projecting strong double-digit earnings growth over the next two years. The 2011 Zacks Consensus Estimate is $1.37, representing 25% growth over 2010 EPS. The 2012 Zacks Consensus Estimate is currently $1.57, corresponding with 15% growth.

It is a Zacks #2 Rank (Buy) stock.

Fundamentals

Briggs & Stratton cuts its dividend in half in 2009 during the Great Recession but hasn't raised it yet. Shares still yield an attractive 2.1%.

The company has been paying down debt over the last few quarters. Debt at the end of Q3 was $240.2 million, $80.4 million less than at the end of the third quarter in 2010.

The valuation picture looks attractive for BGG with shares trading at 15.0x forward earnings, a discount to the industry average of 16.6x.

It also trades at just 1.5x book value, below the industry multiple of 2.3, and 0.5x sales, also below the industry average of 1.2.

Conclusion

With Briggs & Stratton expected to grow EPS by 25% in 2011 and 15% in 2012, a dividend hike might just be on the horizon. With shares trading below the industry average on virtually every metric, this might just be a great buying opportunity.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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