Value Portfolio

Diamond Hill Investment Group reported a strong fourth quarter as earnings jumped 88% to $12.6 million, or EPS of $3.81, compared to $6.7 million or $2.10 per share in the fourth quarter of 2013. Operating margins for the quarter came in at 64% which was higher than its historical results due to a drop in total compensation expense—which can vary greatly from period to period—as a percentage of its total sales. DHIL’s revenues for the quarter rose 28% to $28.5 million.

Full-year earnings came in at $31.6 million, or $9.67 per share, up 43% from the prior year. Revenue for the full year was up 28% to $104.6 million.

The company’s assets under managements for the year rose by $3.4 billion to $15.6 billion.

While DHIL shares are up 3.9% year-to-date but have gained 110% since we recommended on Jan 24, 2013.  I’m raising the buy-below price on Diamond Hill to  $122.

Exactech announced adjusted EPS of $0.36 in the fourth quarter, beating Zacks Consensus Estimates. Negative currency impacts hurt the company, due to a weaker euro and Japanese Yen which set EPS back three cents for the quarter. Net revenues rose 2.8% to $63.3 million but missed Zacks estimates of $64 million.

Driven by the strong performance of its Equinoxe shoulder system, the company’s implant revenues rose 18% to $21.7 million. This was offset by weakness of its knee implants business which is its largest product volume of international sales. The segment saw a 7% drop to $18.9 million due to the negative impact of foreign exchange rates. The company’s hip implants business contributed a 12% increase to $11.3 million due to the launch of its new Alteon brand of hip implants.

For the quarter, U.S. revenues—which comprise about two-thirds of sales—were stalled at $41.7 million while international revenues increased by 9% to $21.6 million.

For the full year, earnings rose 7% to $16.5 million or $1.18 per adjusted share on revenues which increased 5% to $248.4 million.

Management expects further growth in 2015 with revenues of about $252 million to $260 million, the mid-range of which represents a 3.2% growth compared to 2014. Adjusted EPS is estimated at $1.20 to $1.28, up 5% year-over-year. With our highest safety rating of 6, Exactech is a buy up to $26.

Gentex remains an excellent long-term investment with takeover potential, according to a recent positive article.

Gulf Island Fabrication’s fourth-quarter financials were not strong, but there were some re-assuring aspects to them. Although revenues and order backlog declined due to clients delaying metal-fabrication orders, earnings per share and gross profit margins actually improved thanks to aggressive cost cutting and improved efficiency.  Full-year 2014 earnings were a solid $1.05 per share (not bad for a $14 stock!) and debt remained at zero, which is the sign of a strong balance sheet with the financial resilience to outlast the energy industry downturn.

The company is not simply waiting for an industry upturn but is actively seeking out new business in other areas, including wind energy through the Block Island wind farm off the coast of Rhode Island and metal-fabrication work for petrochemical plants and liquid natural gas (LNG) terminals along the U.S. Gulf Coast. The stock took a hit on March 6^th with the release of the company’s 10-K annual report, but the exact reason is a bit vague.  Perhaps the selloff had to due with the cautious business outlook on page 25 of the report which states: “The slowdown in our industry as a result of the downturn in oil prices presents challenges in the near term, particularly as it relates to shallow water activity.” Whatever the case, the company is a survivor and a strong long-term buy. As one analyst recently wrote, Gulf Island Fabrication is one of only nine companies to pass his screen for “safe and cheap” stocks with “improving prospects.” Gulf Island remains a buy up to $23.

US Ecology announced fourth-quarter earnings came in at $8.7 million, or $0.40 per diluted share, compared to $9.2 million, or $0.48 per diluted share in 2013. Despite the decline, its EPS topped analysts’ estimates of $0.36. Total revenue for the fourth quarter jumped to $157.2 million, up from $59.4 million last year due to a contribution of $102.4 million from EQ Holding, which the ECOL acquired in June 2014. Revenues for the quarter were also ahead of analysts’ estimates of $149.3 million.

Revenue for the company’s newly organized Environmental Services (ES)—which includes EQ’s treatment and disposal operations—was $97.7 million, up from $59.4 million.

Excluding the impact of its acquired EQ business, ES revenue fell $4.6 million or about 8% from last year. The drop stems from a 13% decrease in project-based Event Business due accelerated project revenue in the fourth quarter of 2013.

Its other newly organized business segment, Field & Industrial Services (FIS) saw revenues of $59.5 million.

In general, the EQ business has performed above management’s expectations as the environmental services industry generally improved. While not matching its strong fourth quarter 2013 numbers, management says it still delivered solid results in the fourth quarter of 2014.

Net earnings for the full year came in at $38.2 million, or $1.77 per diluted share, up from $32.2 million or $1.72 per diluted share in 2013. Full-year revenue more than doubled to $447.4 million, compared from $201.1 million a year ago. Revenue from EQ operations accounted for $228.2 million in 2014. Excluding contributions from EQ, its ES revenues increased 9% due to a 16% increase in project-based Event Business, and a 5% increase in Base Business.

The company s optimistic about 2015, believing it demand for its services will remain strong. Revenue is estimated in the range of $585 million to $620 million, up about 31% to 34% better than 2014. EPS is estimated in the range of $1.76 to $1.92, which at its midpoint represents a 4% increase from 2014 EPS.

Shares of ECOL are up 22% year-to-date after hitting a six-month low at the start of the year.

Following its earnings announcement, the company earned a nod from analysts at Stifel Nicolaus which raised their recommendation to a “buy” with a price target of $56.50. I’m raising my buy-below on U.S. Ecology to $45.

Weyco Group reported fourth-quarter earnings from operations rose 24% to $13.4 million, compared to $10.8 million a year ago. Revenues for the quarter jumped 21% to $95.3 million, beating analysts’ estimates of $83.5 million.

Net earnings attributed to the company were $8.1 million, up 19% from $6.8 million the prior year. Diluted EPS was up 13 cents to $0.75 in the fourth quarter. Earnings were negatively impacted by $611,000 in expenses related to the 2011 acquisition of the Combs Company (Bogs maker). Excluding the adjustment, earnings from operations and net earnings to the company were up 30% and 25%, respectively. Adjusted for the Bogs liability, diluted earnings were $0.79 per share.

The company saw strong performance of its North American whole sale business which saw revenues rise 27% to $73.9 million. Within the segment, its BOGS brand saw the biggest growth to 69% increase, driven by sales of women’s and children’s boots. The company’s Stacy Adams, Nunn Bush and Florsheim brands also saw revenue growth of 19%, 13% and 10%, respectively.

Net revenues for full-year 2014 increased 7% to $320.5 million. While its whole sale segment grew 8% to $243.4 million in 2014, retail sales were flat at $23.3 million. The company operated seven less retail stores 2014, closing six stores in 2013 and another in 2014. The loss of revenues from the closed stores was offset by a 5% increase in same store revenues. The company’s BOGS brand continues to see growing popularity in the U.S. and Canada, up 46% for the full year.

Earnings from operations rose 10% to $30.7 million and net earnings attributable to the company were $19 million, up 8% compared to the prior year. Diluted earnings per share rose from $1.62 per share to $1.75 in 2014. Weyco remains a buy up to $31.50.

Momentum Portfolio

Platform Specialty Products has acquired Arysta LifeScience for $3.51 billion. The deal which is still subject to working capital and other adjustments will consist of $2.91 billion in cash, and $600 million of Series B convertible preferred stock.

Arysta LifeScience is a leading crop protection and life science company generating about $1.5 billion in revenues in 2013. Following completion of the merger, the President and CEO of Arysta LifeScience, Wayne Hewett is slated to become Platform’s President.

This is Platform’s third acquisition of an agrochemicals company in the past six months. In October 2014, Platform bought Agriphar Group for $400 million and a month later, it paid $1 billion for Chemtura AgroSolutions.

In its press release, Platform’s new President, Wayne Hewett said:

With the close of this acquisition, we are eager to capitalize on the unique growth opportunities that will emerge from having Arysta LifeScience, Agriphar and Chemtura AgroSolutions under one umbrella, counting on the support of our combined team of professionals around the world. Our newly-created AgroSolutions segment possesses a strong bias toward high-growth areas, both in terms of product lines and geographic presence, and with an industry-leading portfolio of active ingredients and registrations, we are ideally positioned to continue developing solutions that will address the evolving demands of farmers around the world.

Platform’s agrochemical businesses are expected to generate $2.1 billion in annual revenues in 2015 and will operate under the Arysta LifeScience name. Acquisition will be immediately accretive to Platform’s adjusted earnings.

Following the acquisitions announcement, shares are trading up $3, or 13% to $26.30. Platform Specialty is a Roadrunner best buy up to $30.

U.S. Physical Therapy  jumped 5.6% on March 5^th as investors celebrated its stellar fourth-quarter financial report  that saw revenues grow 15.7% and earnings per share rise 28.1%, both figures blowing away analyst estimates. In addition, the company increased its quarterly dividend by 25% to $0.15 from $0.12 and improved its balance sheet. CFO Larry McAfee noted:

Despite increasing the Company’s dividend and opening or acquiring 35 clinics during the year the Company’s ending debt balance was reduced by approximately $5.9 million, or 14%, in 2014 as cash flow from operations remained strong.

In the conference call, CEO Chris Reading was very optimistic about 2015:

In 2015, the development this year started out very strong. In fact we have as many organic projects that we have approved thus far, not that are opened yet, but that we had approved, as many as we did all last year. We started the year with a bang and with a great deal on our home state of Texas with a great group. It was named 2014 Private Practice of the year across the entire country. We were excited about them.

And we’ve just — we brought so many terrific people into the company over these many years now, in addition to our long legacy partners, who are still doing great work, but that gives us a great foundation for continued progress.

I’m raising the buy-below price on U.S. Physical Therapy to $41.50.