Call of the Week: Is this Lake Heating Up?

Robert Maltbie  |

This week at Singular Research, we initiated a new buy rating on a company that we think represents an attractive value play given its exposure to the emerging markets as well as a potential near-term catalyst. That company is Lakeland Industies, Inc. (LAKE), which manufactures and sells safety garments and accessories to the industrial protective clothing market.

In the U.S., Lakeland Industries' products are sold through its direct sales force and independent sales reps to over 1,000 safety and mill supply distributors, which supply the the federal, state, and local government agencies, fire and police departments, Department of Defense, and the Centers for Disease Control. The company also has sales in about 30 different international markets going through distributors and to end-users directly.

Shares of LAKE are trading at around $10 per share, a steep discount to its book value of over $14 per share. The company is positioning itself for higher sales and operating margins by terminating its distribution deal with DuPont (DD), and could even represent a potential strategic takeover opportunity based on the recent 9-percent investment in LAKE shares by foreign competitor Ansell Ltd.

Singular analyst John Curti, who covers the company, has a price target of $14.75 for Lakeland and says that the company's "expansion into international markets continues to pay off with strong gains in revenues, margins, and profits and we expect that growth to continue, particularly in Latin America, China, Asia, Canada, and Europe.We forecast EPS growth of 94.4% in F2012, 42.9%% in F2013, and 90.0% in F2014. Our 12-month price target is $14.75, or 15.5x our F2014 estimate."

So even though sales are expected to decline in 2012 and 2013 as the company replaces the $25 million in revenue from DuPont, the company should improve its margins by as much as 2.5x higher. With expanding margins from growing international sales, we think Lakeland provides a very interesting opportunity in the market.

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