It’s Time to Ride Toromont Industries Ltd. to $100

Toromont Industries Ltd. (TSX:TIH) announced excellent earnings February 22. Here’s why it’s going to keep delivering for shareholders.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Toromont Industries Ltd. (TSX:TIH) surged more than 6% February 23 after announcing solid fourth-quarter earnings.

Fool.ca contributor Joseph Solitro singled out the company’s 21.1% increase in its quarterly dividend to $0.23 a share, the sixth consecutive year upping its dividend, as a big reason why investors ought to own Toromont stock.

I couldn’t agree more.

The dividend is just one of the many positives anyone looking closely at its business should be able to see. Toromont is a well-run business that’s taken its game to the next level, and if the growth continues, I don’t see any reason why it can’t hit $100 by the end of 2019.

Transformational deal

Last September, I raved about the billion-dollar deal Toromont made acquiring Hewitt Group, a family-owned Caterpillar dealer with 45 branches in Quebec, Atlantic Canada, Ontario, and Nunavut.   

With this deal, Toromont holds the rights to sell Caterpillar equipment from Manitoba all the way east to Newfoundland and Labrador,” I wrote September 1. “That’s great news for shareholders who’ve waited patiently for the oil and gas and mining industries in this country to recover to the point where investments in new equipment are necessary.”

I’m not the only one that thinks Toromont is one of the best stocks in the services sector. Raymond James analyst Ben Cherniavksy just upped the company’s 12-month price target to $67 from $63 on the strength of its Q4 2017 earnings report.

The transformative nature of the Hewitt acquisition and the extended integration efforts involved compels us to embrace a longer-term perspective on Toromont’s valuation,” Cherniavsky said in a note to clients. To derive our target price we apply a price-to-earnings multiple of 20 times (the upper end of the stock’s historical range) to our new 2019 EPS estimate of $3.35.”

As I’d stated in September, if you want to own a stock that gives you an interest in a business that sells and rents heavy equipment from Caterpillar Inc. (NYSE:CAT), you’ve got two choices in Canada: Toromont or Finning International Inc. (TSX:FTT). That’s it; that’s all.

Toromont dwarfs Finning

For my money, there’s no comparison, despite the fact Finning’s stock is up 35% over the past 52 weeks, almost 10 percentage points higher than Toromont.

Finning has suffered in recent years from a troubled mining industry; now, it’s riding a bit of a renaissance in the commodities area. 

Although Toromont faced that same headwind and is now also benefiting from a healthier mining industry — its sales in the mining sector were up 75% in 2017 — its equipment group also generated higher power systems sales and support revenue from companies looking to lower their energy costs at their operating facilities by using CAT gas generators to make their plants self-sufficient.

Also, Toromont’s CIMCO refrigeration business (14% of revenue) is also growing by double digits — revenues increased by 13%, while operating income rose 46% — providing an unbelievable return on capital employed in 2017 of 96.4%, more than 20 percentage points higher than a year earlier.

Any time you can invest $1.4 million in capital expenditures in a single year to generate $30 million in operating income; you’ve got a business worth hanging on to, despite the fact it’s such a small part of Toromont’s overall business.

Frankly, with all the good stuff happening at Toromont, $100 by the end of 2019 seems like a lock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned. Finning is a recommendation of Stock Advisor Canada.  

More on Investing

edit U-turn
Tech Stocks

Can Shopify (TSX:SHOP) and Lightspeed (TSX:LSPD) Recover Before 2023?

Shares of these omnichannel commerce-enabling companies are down over 80%, creating a solid buying opportunity.

Read more »

ETF chart stocks
Dividend Stocks

3 ETFs to Buy Now and Hold for Decades

Holding reliable growth ETFs for decades is one of the most tried and tested ways of building your wealth over…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Housing Affordability Is Out of Reach for Many Canadians

The interest rate hikes will cool the real estate market, but the housing affordability crisis would worsen, as homeownership and…

Read more »

TFSA and coins
Investing

3 Oversold Stocks to Buy for a TFSA

Manulife Financial (TSX:MFC)(NYSE:MFC) and two other oversold TSX stocks could be top long-term holds for a TFSA retirement fund.

Read more »

protect, safe, trust
Stocks for Beginners

2 Safe Stocks Beginners Can Buy for Reliable Passive Income

If you are a beginner investor looking for safe, reliable passive income, I've got two TSX stocks you can rely…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Oversold Great Canadian Dividend Stocks to Buy Now and Own for 20 Years

These top Canadian dividend stocks look oversold right now and continue to raise their payouts.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

3 Value TSX Stocks to Eye in July 2022

Here are a few value TSX stocks to check out in July 2022. They also pay juicy, safe dividend income…

Read more »

sad concerned deep in thought
Cryptocurrency

Elon Musk Buys Dogecoin: Should You?

Elon Musk is back to buying Dogecoin (CRYPTO:DOGE). Should you join him?

Read more »