The Intelligent Investor have resumed coverage with Spec Buy...

The Intelligent Investor have resumed coverage with Spec Buy <$3.50, Sell>$6.

Don’t give up

..... BWX’s stock has fallen almost 20% since it updated guidance. But, given all the qualities and statistics above, has BWX’s intrinsic value really fallen by a fifth since yesterday? We doubt it. More likely is that some investors were just too optimistic about its growth rate.

When we initially updated coverage in March 2020, we said that ‘margins could contract as raw material prices spike [and] the coronavirus outbreak could disrupt the company's supply chain in ways not yet seen’. Unfortunately, those risks are now playing out.

Yes there are temporary supply chain bottlenecks. Yes there's going to be a margin squeeze in the short term. And yes the slowdown in Sukin sales mid-last year caught everyone off-guard.

But sales have rebounded strongly for BWX’s high-growth brands, a new factory and cost-cutting program should boost margins starting next year, the US rollout is going to plan, and the company still has excellent returns on tangible capital with a clean balance sheet. And, now, the stock is cheaper than at any point in 10 years. There may not be a ‘for sale' sign on the lawn, but our guess is that BWX’s current share price will attract plenty of attention in the strategy rooms of large competitors.

SPECULATIVE BUY.

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