BUSINESS
Helios Technologies, Inc., together with its subsidiaries, develops, manufactures, and sells solutions for the hydraulics and electronics markets in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates in two segments, Hydraulics and Electronics. The Hydraulics segment offers cartridge valve technology products to control rates and direction of fluid flow, and to regulate and control pressures for industrial and mobile applications; quick release coupling solutions for the agriculture, construction equipment, and industrial markets; and hydraulic system design that provides engineered solutions for machine users, manufacturers, or designers. This segment sells its products under the Sun Hydraulics, Faster, and Custom Fluidpower brands.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, HLIO is expected to continue to be a modest Value Builder.
Helios Technologies has a current Value Trend Rating of F (Lowest Rating).
This rating combines inconsistent signals from two proprietary PTR measures of a stock’s attractiveness. Helios Technologies has a neutral Appreciation Score of 55 but a very low Power Rating of 8, producing the Lowest Value Trend Rating.
Helios Technologies’ stock is selling well below targeted value. The current stock price of $44.53 compares to targeted value 12 months forward of $66.
This neutral appreciation potential results in an appreciation score of 55 (45% of the universe has greater appreciation potential.)
Helios Technologies has a Power Rating of 8. (This very low Power Rating indicates that HLIO only has a better chance of achieving attractive investment performance over the near to intermediate term than 8% of companies in the universe.)
Factors contributing to this very low Power Rating include: recent price action has been unfavorable; the Miscellaneous Industrial Products comparison group is currently in an unfavorable position; and earnings estimate behavior for HLIO has been slightly negative recently.
INVESTMENT PROFILE
HLIO’s financial strength is high. Financial strength rating is 76.
Relative to the S&P 500 Composite, Helios Technologies Inc has moderate Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that HLIO is normal risk. All factors are relative weaknesses. Relative weaknesses for HLIO include: low forecasted profitability, and low historical profitability. HLIO’s valuation is moderate: moderate dividend yield, moderate P/E ratio, and low price/book ratio. HLIO has unusually low market capitalization.
CURRENT SIGNALS
Helios Technologies’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Helios Technologies’ current technical position is very weak. The stock price is in a 4.9 month down move. The stock has declined 28.5% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Positive development: significant quarterly earnings acceleration occurred. Negative development: significant quarterly sales deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of F. This review will be completed in the next several days.
For its fourth fiscal quarter (ending December 31), Helios Technologies Inc (NYSE: HLIO) has reported a -81% decline in E.P.S. from $0.54 a year ago to $0.10 in the current quarter. This performance was $-0.17 short of the consensus estimate of $0.27. E.P.S. were $1.14 for the latest four quarters through December 31 versus $3.03 for the same period a year ago — a decline of -62%.
Helios Technologies Inc (NYSE: HLIO) stock increased 1.6% on 2/26/24. The shares closed at $44.53. Moreover, trading volume in this advance was unusually high at 150% of normal. The stock has been extremely weak relative to the market over the last nine months but has risen 2.2% during the last week.
CASH FLOW
In 2022, Helios Technologies generated a very significant increase in cash of +$15.1 million (+53%). Sources of cash were much larger than uses. Cash generated from 2022 EBITDA totaled +$203.3 million. Non-operating uses consumed -$13.8 million (-7% of EBITDA). Cash taxes consumed -$34.2 million (-17% of EBITDA). Re-investment in the business amounted to -$109.3 million (-54% of EBITDA). On a net basis, debt investors withdrew -$18.4 million (-9% of EBITDA) while equity investors received -$12.5 million (-6% of EBITDA).
Helios Technologies’ Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Helios Technologies Peer Group. In most years, Helios Technologies was in the third quartile and top quartile. Currently, Helios Technologies is slightly below median at -7% of EBITDA (-$13.8 million).
Helios Technologies’ Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Helios Technologies Peer Group. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, Helios Technologies was in the lower quartile and top quartile. Currently, Helios Technologies is below median at -17% of EBITDA (-$34.2 million).
Helios Technologies’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Helios Technologies Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp recovery.) In most years, Helios Technologies was in the lower quartile and top quartile. Currently, Helios Technologies is slightly below median at -54% of EBITDA (-$109.3 million).
Helios Technologies’ Debt Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Helios Technologies Peer Group. In most years, Helios Technologies was in the top quartile and second quartile. Currently, Helios Technologies is slightly above median at -9% of EBITDA (-$18.4 million).
Helios Technologies’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Helios Technologies Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Helios Technologies was in the top quartile and third quartile. Currently, Helios Technologies is slightly below median at -6% of EBITDA (-$12.5 million).
Helios Technologies’ Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Helios Technologies Peer Group. In most years, Helios Technologies was in the lower quartile and top quartile. Currently, Helios Technologies is above median at +7% of EBITDA (+$15.1 million).
Helios Technologies’ Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Helios Technologies Peer Group. In most years, Helios Technologies was in the lower quartile and top quartile. Currently, Helios Technologies is lower quartile at +5%.
PROFITABILITY
Helios Technologies’ return on equity has eroded very significantly since 2013. The current level of 6.1% is 2.62X the low for the period and is -69.1% from the high.
Helios Technologies’ very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of Helios Technologies’ assets declined over the full period 2013-2023: asset turnover has suffered a very strong overall downtrend although it experienced a very sharp recovery after the 2020 low.
Helios Technologies’ pretax margin experienced a very strong overall downtrend over the period 2013-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Helios Technologies’ return on equity is substantially below median (6.1%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at the lower quartile (3.9%) reflecting asset turnover that is below median (0.53X) and pretax margin at the lower quartile (7.4%).
Tax “keep” rate (income tax management) is at median (83.3%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is at median (1.89X).
GROWTH RATES
Overall, Helios Technologies’ growth rate has slowed very considerably in recent years.
Helios Technologies’ historical income statement growth has been lower than balance sheet growth. Revenue growth has fallen short of asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 16.0% per year.
Total asset growth has been 23.1% per year. (More recently it has been 9.4%.)
Annual E.P.S. growth has been 6.2% per year.
Equity growth has been 15.8% per year. (More recently it has been 9.9%.)
Helios Technologies’ consensus growth rate forecast (average of Wall Street analysts) is 10.0% — substantially below the average of the historical growth measures.
Relative to the Helios Technologies Peer Group, Helios Technologies’ historical growth measures are generally top quartile. Revenue growth (16.0%) has been upper quartile. Total asset growth (23.1%) has been upper quartile. Equity growth (15.8%) has been upper quartile. E.P.S. growth (6.2%) has been slightly above median.
Consistent with this pattern, consensus growth forecast (10.0%) is also at median.
PRICE HISTORY
Over the full time period, Helios Technologies’ stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Helios Technologies’ stock price rose +36%; relative to the market, this was a -57% loss. Significant price moves during the period: 1) December, 2021 – September, 2022: -52%; 2) April, 2020 – December, 2021: +196%; and 3) May, 2016 – December, 2017: +121%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -37.1% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -37.1% is lower quartile relative to Helios Technologies Inc Peer Group.
Current 5-year total return performance of 3.8% is substantially below median relative to the S&P 500 Composite.
Through January, 2024, with substantially below median current 5-year total return of 3.8% relative to S&P 500 Composite, Helios Technologies’ total return performance is below median relative to Helios Technologies Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, HLIO’s overall valuation is low. The highest factor, the price/earnings ratio, is above median. Ratio of enterprise value/earnings before interest and taxes is slightly below median. Ratio of enterprise value/assets is below median. Ratio of enterprise value/revenue is below median. The lowest factor, the price/equity ratio, is lower quartile.
Relative to Helios Technologies Peer Group, HLIO’s overall valuation is quite low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile. Ratio of enterprise value/revenue is at the lower quartile. Price/earnings ratio is below median. Ratio of enterprise value/assets is lower quartile. The lowest factor, the price/equity ratio, is at the lower quartile.
Helios Technologies has a very large value gap compared to the median. For HLIO to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.43X to 2.93X. If HLIO’s ratio of enterprise value/revenue were to rise to 2.93X, its stock price would be higher by $13 to $57.
For HLIO to achieve upper quartile valuation relative to the Helios Technologies Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.43X to 4.84X. If HLIO’s ratio of enterprise value/revenue were to rise to 4.84X, its stock price would increase by $61 from the current level of $45.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, HLIO is expected to continue to be a modest Value Builder.
Helios Technologies’ current Price Target of $65 represents a +45% change from the current price of $44.53.
This neutral appreciation potential results in an appreciation score of 55 (45% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 55, the low Power Rating of 8 results in an Value Trend Rating of F.
Helios Technologies’ current Price Target is $65 (-19% from the 2022 Target of $80 but +45% from the 02/26/24 price of $44.53). This fall in the Target is the result of a +10% increase in the equity base and a -27% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 9.2% — below our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is significantly below the 2014 peak of 21%.
PTR’s growth forecast is 11.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly below the 2019 peak of 21%.
PTR’s cost of equity forecast is 6.7% — slightly below recent levels. Forecasted cost of equity exhibited a modest, erratic increase between 2014 and 2022. The current forecast is below the 2014 peak of 10.2%.
At Helios Technologies’ current price of $44.53, investors are placing a positive value of $10 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 18.0% per year, and a return on equity of 14.8% versus a cost of equity of 10.1%.
PTR’s 2024 Price Target of $65 is based on these forecasts and reflects an estimated value of existing assets of $46 and a value of future investments of $19.
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