Johnson turns on power
JOHNSON Electric makes micro-motors for car parts, consumer products, home appliances and power tools.
ABN Amro recently put a buy on the stock, pointing to strong earnings outlook and rising cash flow. It believes the economic slowdown in the United States and Europe will help rather than hurt Johnson Electric, as Western companies increase outsourcing to reduce costs.
ABN estimates that increased outsourcing will drive sales growth by an average of 11 per cent from 1998 to 2000.
As margins continue to widen as a result of lower input prices and rising capacity utilisation, ABN expects earnings to compound at 24 per cent per year over the next two years.
Free cash flow is estimated to exceed $750 million next year. A cash pile of nearly $2 billion provides scope for acquisitions or share buybacks.
Because of its US earnings base, Johnson Electric has been a defensive stock since the onset of the Asian crisis. ABN believes value still remains in the stock.
It says Johnson Electric is fair value at $22.50, compared with $16.75 per share at Thursday's close.
