Mueller Industries Inc. (NYSE: MLI) is a large steel structure manufacturing company. The company operates in a market that doesn’t generate huge profits or growth ideas, and many would find it boring. But they make money and have a predictable and stable business. These are the companies I prefer, and you can be sure that some investors do not pay attention to this corner of the market. The company struggled to pay off the debt, they now have zero debt and have a $400 million fully undrawn line of credit, making them very flexible if acquisition targets arise and the company can move quickly. Even without any acquisition to kick-start growth, the company has huge free cash flow and has been growing for many years, a trend that looks set to continue into the future. The market does not seem to appreciate the company, and the growth in revenue and profit in recent years seems more revealing.
“Mueller Industries, Inc. manufactures and sells copper, brass, aluminum and plastic products in the US, UK, Canada, Korea, the Middle East, China and Mexico. The company operates in three segments: piping systems, industrial metals and climate. Piping Systems The segment offers copper pipes, fittings, piping kits and fittings, PEX pipes and radiant systems, as well as plumbing related fittings and plastic injection molding tools and plumbing pipe supply.This segment sells its products to wholesalers in markets plumbing and refrigeration, home and leisure vehicle distributors, building materials retailers and original air conditioning equipment manufacturers (OEMs).The Industrial Metals segment produces brass, bronze and copper alloy rods, brass for pipes, valves and fittings ; cold-formed aluminum and copper products; aluminum processing i, steel, brass and cast iron impact and castings; forgings made of brass and aluminum; valves made of brass, aluminum and stainless steel; fluid control solutions and original equipment manufacturers of gas systems assembled for the industrial, architectural, HVAC, plumbing and refrigeration markets. The Climate segment supplies valves, guards and brass to various OEMs in the commercial HVAC and refrigeration markets. Accessories; High Voltage Components and accessories for the air conditioning and refrigeration markets; coaxial heat exchangers and coiled tubes for HVAC, geothermal, refrigeration, swimming pool heat pumps, shipbuilding, ice makers, commercial boilers and heat recovery markets; insulated flexible HVAC systems; brazed manifolds, manifolds and distributor assemblies. The company was founded in 1917 and is headquartered in Collierville, Tennessee.”
In 2021, Mueller Industries will report $3.8 billion in annual revenue, $468.5 million in net income, and $8.25 in diluted earnings per share. The company also reported earnings for the first and second quarters of 2022. For the first half of 2022, the company reported revenue of $2.16 billion, net income of $364 million and diluted earnings per share of $6.43. The company pays a current dividend of $1.00 per share, or a 1.48% yield on the current share price.
The prospects for further development of the company are good. New home construction and commercial development are important factors influencing and helping to determine a company’s sales, as these areas account for the majority of demand for the company’s products. According to the US Census Bureau, the actual number of new homes in the US will be 1.6 million in 2021, up from 1.38 million in 2020. In addition, private non-residential buildings were valued at 467.9 billion in 2021, 479 billion in 2020 and 500.1 billion in 2019. Demand in these areas is expected to remain strong and companies believe that their business and financial performance will benefit from these factors and remain stable. . It is predicted that in 2022 and 2023 the volume of non-residential construction will grow by 5.4% and 6.1%, respectively. This demand perspective will help Mueller Industries, Inc. maintain high levels of growth and operations.
Potential risk factors that could affect the business are the economic conditions associated with residential and commercial development. The construction markets currently look stable and have been doing well over the past few years, but deterioration in these markets in the future could have a significant impact on the company’s business.
The current market capitalization of Mueller Industries Inc. is $3.8 billion and has a price-to-earnings ratio (P/E) of 5.80. This price-to-earnings ratio is actually much lower than most of Mueller’s competitors. Other steel companies currently trade at P/E ratios of around 20. On a price-to-earnings basis, the company looks cheap compared to its peers. Based on the current state of operations, the company looks undervalued. Considering the growth in the company’s revenue and net income, this seems like a very attractive stock with an unrecognized value.
The company has been paying off debt aggressively over the past few years and the company is now debt-free. This is very positive for the company, because now it does not limit the company’s net profit and makes them very flexible. The company ended the second quarter with $202 million in cash and they have a $400 million unused revolving credit facility available to draw on if operations are required or strategic acquisition opportunities arise.
Mueller Industries looks like a great company and great stock. The company has historically been stable and experienced explosive demand growth in 2021 that will continue into 2022. The portfolio of orders is large, the company is doing well. The company is trading at a low price-to-earnings ratio, looks heavily undervalued compared to its competitors and in general. If the company had a more normal P/E ratio of 10-15, then the stock would more than double from current levels. The company looks poised for further growth, which makes the current undervaluation all the more attractive, even if their business doesn’t grow staggeringly, if it remains stable, the company has prepared for everything the market has to offer them off the shelf.
Disclosure: I/we do not hold stocks, options or similar derivatives in any of the companies listed above, but we may enter into a profitable long position by buying stocks or buying calls or similar derivatives in the MLI within the next 72 hours. I wrote this article myself and it expresses my own opinion. I have not received any compensation (other than Seeking Alpha). I have no business relationship with any of the companies listed in this article.