Ametek (AME) Defended at Oppenheimer

Oppenheimer maintained an Outperform rating on Ametek Inc. (NYSE: AME) with a price target of $59. Earlier it was targeted by short seller Spruce Point Capital.

Analyst Christopher Glynn said, "The report is well over 100 pages, so our response is to a partial review, but enough to debunk several specific key points (and the thesis) in our minds. The report notes negative cumulative FCF after capex and acquisitions. We have never used acquisition spend in our FCF calculation, but to play along, from 2010-13 AME generated $2.2B of CFO and spent $2.2B on acquisitions (capex was $211M); 2013 EBITDA was $934M, $379M (68%) higher than in 2010. Net leverage declined. We would say AME earns solid returns on acquisitions."

"The report cites declining inventory turns as evidence of inventory mismanagement, but the chart starts with 2011 (a peak year that spiked above normal) and ends by comparing to a quarterly period in 2Q14 when AME closed its second largest acquisition ever. Apples to Oranges. Inventory turns remain consistent with historical levels," continued the analyst. "The report cites under-investment in R&D ("inherently benefiting margins") and that AME has to acquire to make up for it. RD&E (with engineering) is 5% of revenues, a very healthy level. Engineering is important at AME, as solutions are often customized at some level, leveraging base technologies . . . The report cites goodwill/intangibles/other as 69% of assets, and that AME amortizes too slowly (benefiting margins). D&A increased $79M from '08-'14E (over 2.2x). The increase is 2.6% of cumulative acquisition spend, consistent with our work on this metric with other companies."

"We don't recall adversity with Dunkermotoren, Mr. Molinelli was 66 years old, and equity clawback language was in response to urging from ISS. The word "appears" is prevalent in the report. We don't buy what appear to us arbitrary correlations. FCF/NI consistently over 100% sums up all our preceding comments," he added.

For an analyst ratings summary and ratings history on Ametek Inc. click here. For more ratings news on Ametek Inc. click here.

Shares of Ametek Inc. closed at $52.22 yesterday.

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