Initial Screening

Carlisle Companies has a rich history spanning 104 years after being founded in 1917 as the Carlisle Tire and Rubber Company.

The company has evolved as an industrial conglomerate now offering various products and components for the construction industry including roofing materials, cables and connectors, and tools like pumps and spray guns.

Carlisle’s peer group and main competition consist of other global industrial powerhouses such as the American Dover Corp (NYSE: DOV), the German Continental AG (ETR: CON) as well as the Irish Eaton Corp Plc (NYSE: ETN).

The stock is traded under the Ticker symbol CSL on the New York Stock Exchange and all financial figures quoted throughout this article will be referenced in USD.

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Business Model

Carlisle Company’s business model can be broken down into 3 major segments: Carlisle Construction Materials, Carlisle Interconnect Technologies, and Carlisle Fluid Technologies.

Each of the segments serves its own target market, but we will take a closer look at each in the following paragraphs:

Carlisle Construction Materials (CCM) accounts for the majority of the company’s revenue, at 75%. The products of this segment are focused on solutions for the building envelope of non-residential constructions for US and EU markets with the main driver being the modernization of aging buildings as well as the increased energy efficiency focus for new builds achieved through insolation.

To demonstrate the vast amount of products and solutions available, the graphic below showcases all areas where CCM products may be used.

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Next by revenue, the Carlisle Interconnect Technologies (CIT) segment contributes 19% to the total revenue of Carlisle Companies. The primary products of this segment are wires, cables, and connectors used throughout different industries such as commercial aerospace and the healthcare sector.

The smallest segment by contribution to total revenue (6%) is Carlisle Fluid Technologies (CFT). The product offering spans spray guns, air regulators and curing systems with a focus on the automotive industry. All figures and percentages quoted are derived from the 2020 Total Revenue.

Dividend Growth and Sustainability

Carlisle Companies’ current dividend yield as of 10/03/2021 is 1.07% which seems rather unattractive for investors looking to add immediate cash flow to their portfolios. Comparing the current yield to the 5-year average yield of 1.31%, it’s slightly lower than investors have seen in the recent past.

The following section will cover some history on and judge the sustainability of Carlisle Companies dividend by examining the payout ratio as well as its growth to determine whether the industrial conglomerate makes a compelling case for dividend growth investors.

Dividend History & Growth

Carlisle Companies Inc has been increasing its dividend paid to shareholders for the last 44 years, and thus achieved the status of Dividend Champion (25 or more years of consecutive dividend increase).

Reflecting on the last decade, between 2011 and 2021, the dividend per common share increased by a stunning 208.6%, but buyers beware - the latest increase announced on August 5, 2021, only increased the dividend by a meager 2.86%.

Even with the consistent payout history, the current yield is nothing to write home about. However, as a dividend growth investor, I would consider keeping the company on my watchlist to see whether the next dividend increase is more attractive again.

Payout Ratio

Over the past 10 years, Carlisle Companies’ dividend payout ratio has hovered between 18.18% (2012) and 34.77% (current), with the 5-year-average clocking in at 28.80%.

From a payout ratio standpoint alone, I think Carlisle Companies is in a good position. The ratio indicates that there is enough room to fuel future dividend growth while leaving enough revenue in the company to grow and continue its strategy of growth through acquisition while weathering the storm of potential cycles in the industrial sector.

Financial Snapshot

Using the Piotroski F-Score to get a first glance at Carlisle Companies’ current financial health, it secures only a 4 in the 0-9 ranking at this time which signals a stable but not healthy financial position. Note: operating in a cyclical industry, at various points in time over the last 10 years Carlisle Companies’ F-Score ranged between 1 and 8.

The company wasn’t able to score points for year over year operating efficiency and leverage, liquidity, and funding - not an uncommon sight amid the pandemic.

Over the last 5 years, the revenue of the company has shown a steadily upwards trend, but it has to be noted that the earnings stayed rather flat during that time frame. The profit margins also took a hit during the pandemic and are currently 2% lower compared to the margins experienced between 2018 and 2020.

Looking at the Debt to Equity history we can see that the company has taken on a lot of debt over the last 5 years, raising its debt to equity ratios from 24.4% to 115%. At first glance the rise of debt over this short of a period is alarming but it is in line with the strategic approach of leveraging acquisitions as a key contributor to future growth.

Digging a little deeper into the debt metrics, Carlisle’s debt is not very well covered by their operating cash flows (18.6%), but interest payments are covered considering a 6.9x coverage rate by EBIT.

Investment Case

In the following section, we will dive into the company's Moat as well as Bull and Bear cases to outline which headwind the company might face while providing insight into their strategy and growth opportunities.

Moat

Carlisle Companies has a wide moat built on its experience and focus on niche products and solutions in the construction industry. Whether it’s roofing products, HVAC and airflow hardware, or wall panels/insulation and proofing for the ground - Carlisle’s products can be used and found around a building.

The Bull Case

The largest near-term opportunity is a further expansion into Europe. The company invested in new facilities in Germany to expand its capacity and will focus on scaling through merger and acquisition activities.

For long-term growth, the focus of global governments on battling climate change could lead to government incentives used to subsidize new builds with better insulation (one of Carlisle’s product offerings) to save energy.

Further drivers for growth are strategic acquisitions focussed on high returning assets as further outlined in their Vision 2025 strategy. The company tallied over 85 acquisitions in the past 30 years.

The Bear Case

One of the bear cases derived from the last statement of the bull case is the assumption of the successful integration of other businesses. With mergers and acquisitions being a key driver for growth the company needs to unlock cost synergies and benefits for operating costs to be successful. Failure to do so will have a negative effect on the financial condition of the whole company.

Another risk is the focus on very cyclical market segments. Industries like the automotive and construction industry are very sensitive to economic conditions and a downturn in those industries will impact the company’s earnings as over 70% of the total revenue is derived from cyclical sectors.

Conclusion

I would not buy Carlisle Companies at its current valuation, but it remains on my dividend stock watchlist. The company itself has a stable business but with the run of the stock price since 2020, I will wait for an opportunity during a bear cycle for industrials.

As always, I recommend potential investors browse through the documents found on Carlisle Companies’ investor relations page as a great starting point for your due diligence.