The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

ECA Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 9 years. For, ECA the high and low end of the Price to Sales per share ratios are 2.50x and 1.49x respectively.

Notice that ECA's current Price to Sales per share ratio is 1.30x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $49.25, ECA is 35% below where we would expect to see it. This will beneficially factor into our final analysis of ECA as it is not often that this stock sinks to these levels.

ECA Cash Earnings

Looking at ECA specifically in their Cash Earnings capabilities, Ockham views ECA as significantly below its historical average multiple of Cash Earnings. Looking at the last 9 years we can get a good understanding of what investors have grown to expect from ECA. For example, ECA's Cash Earnings ratio per share has fluctuated between 3.62 and 6.10 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where ECA is with respect to prior business periods.

So with ECA's current price (latest close of $49.25) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, ECA is 27% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with ECA.

ECA Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from ECA against the historic high and low levels over an available data range. Because ECA has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In ECA’s case, the estimated annual dividend is $1.60 producing a current dividend yield of 3.25%. The highest dividend yield from ECA in recent history was 4.71% while the lowest dividend yield was 0.00%. It's hard not to notice that ECA pays a current dividend yield that is 38.00% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.