Best Ideas 2018 - EnPro Industries, Inc. (NPO) with Gabelli Analyst Justin Bergner

Gabelli Research Analyst Justin Berger discusses his best idea for 2018, EnPro Industries, Inc.

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Transcript: We are recommending EnPro as our best idea for 2018.

EnPro, headquartered in Charlotte, manufactures proprietary engineered industrial products, across three segments: sealing products, engineered products and power systems.

The company has 21 million shares outstanding, closed at 94 dollars per share for an equity market cap of 2 billion dollars.

While EnPro’s stock has gained nearly 40% in 2017, we see the company’s Trident OP engine as an opportunity to double the $200mm of revenue and $35mm of EBITDA of the power systems business over a 10-year time horizon. Trident OP is addressing a $2B 3.5-5MW power Systems market with an engine offering best in class fuel efficiency and lowest in class maintenance costs, which should be a recipe for success.

EnPro is still inexpensive, trading at 10.7x YE’18 EV / adjusted EBITDA, after adjusting for remaining asbestos settlement payments and tax benefits. General industrial transactions have averaged over 11x EBITDA over the last two years, and as mentioned, EnPro also has the Trident OP growth option. Because of the lengthy asbestos settlement process, many investors remain unfamiliar with EnPro, or they are familiar with the company but have not met management.

Notably, attendance at the March 2017 Investor Day was thin. Management are solid operators and capital allocators, with the ability to be more proactive with bolt on M&A and with more attractive financing terms now that the asbestos situation is behind them.

EnPro should grow EBITDA at a 4% rate from 2017-2021 and EPS at a 10%+ rate . We estimate EPS of $3.10 in 2017 growing to $4.10 in 2019 and calculate a 2019 Private Market Value of $109 per share.

Other industrial players have expressed interest in seals, keeping open the option for a split and sale of the business a few years out.

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