DXP Analysis
Running Head: DXP ENTERPRISES ANALYSIS
DXP Enterprises Analysis
Gina Boling
Davenport University
April 15, 2012
Page 1
DXP Analysis
Table of Contents

Overview Pg 3

Financial Statements Pg 4-8

Financial Statement Summary Pg 9-10

Ratio Analysis Pg 10-11

Stock Price history/Forecast Pg 11-13

Other Pertinent Information Pg 13

Recommendation Pg 14
Page 2
DXP Analysis
Overview
DXP Enterprises (DXPE), founded in 1908, incorporated in 1996, is a publicly held
corporation in the Industrial Equipment Wholesale industry in the Services sector. DXP
Enterprises primary business activities are focused in the areas of distributing maintenance,
repair, and MRO products, equipment and services to industrial companies. DXP Enterprises is
headquartered in Houston, TX and has 2,093 full time employees. As of 2011, DXP had 123
locations in 34 states (Morningstar.com, 2012). DXP Enterprises boasts a customer base of over
50,000 mainly conducting business in the United States and Mexico but many of its customers
are multi-national companies. David Little, Chairman, CEO, and President received $1.4 million
in compensation year ending December 31, 2010 (Yahoo Finance, 2012). Institutional
Shareholder Services rated DXP’s governance risk indicator as of April 2012 Audit – high
concern, Board – medium concern, Compensation – medium concern, and shareholder rights –
low concern. DXP has steadily expanded since incorporation through a strategy of internal
growth and acquisitions. In 1996, sales were $125 million and increased to $807 million in 2011
(Morningstar.com, 2012). In 2010, Industrial Distribution magazine ranked DXP 16th largest
distributor of MRO products. The Industrial Equipment Wholesale industry is highly
competitive and DXP’s competition is local supply and distribution companies, large scale
distribution companies, and manufacturers. Many of the companies that are competitors
however, specialize in one area, product or service. DXP seeks to be a leading integrated
provider of these services and products to the end user offering consolidation of these services
and products for the customer (Morningstar.com, 2012).
Page 3
DXP Analysis
Financial Statements
DXP Enterprises, Inc. (DXPE) Income Statement
Fiscal year ends in December.USD in millions except per
share data.
Revenue
Cost of revenue
Gross profit
Operating expenses
Sales, General and administrative
Other operating expenses
Total operating expenses
Operating income
Interest Expense
Other income (expense)
Income before taxes
Provision for income taxes
Net income from continuing operations
Net income
Preferred dividend
Net income available to common shareholders
Earnings per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
2007200820092010201112
12
12
12
12
TTM
445
737
583
656
807 807
319
530
432
468
575 575
126
207
151
188
232 232
94
159
151
176
176
159
48
6
0
42
16
26
26
0
26
148
53
201
-49
5
0
-54
-12
-42
-42
0
-43
94
32
3
0
29
12
17
17
0
17
151
37
5
0
32
13
19
19
0
19
176
55
4
0
52
21
31
31
0
31
176
55
4
0
52
21
31
31
0
31
1.48
1.36
2.02
1.89
-3.24
-3.24
1.4
1.32
2.19
2.08
2.19
2.08
12
13
13
13
13
13
14
15
14
15
14
15
(Morningstar.com, 2012)
Page 4
DXP Analysis
DXP Enterprises, Inc. (DXPE) Balance Sheet
Fiscal year ends in December. USD in millions
except per share data.
Assets
Current assets
Cash
Cash and cash equivalents
Total cash
Receivables
Inventories
Deferred income taxes
Prepaid expenses
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Gross property, plant and equipment
Accumulated Depreciation
Net property, plant and equipment
Goodwill
Intangible assets
Deferred income taxes
Other long-term assets
Total non-current assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Short-term debt
Accounts payable
Taxes payable
Accrued liabilities
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Deferred taxes liabilities
Minority interest
Total non-current liabilities
Total liabilities
200712
200812
4
4
80
84
2
2
6
6
101
119
4
3
172
233
26
-9
17
61
36
33
-13
20
99
45
1
115
286
200912
201012
201112
2
2
77
73
8
4
0
164
1
1
100
76
6
3
0
185
2
2
137
94
5
2
1
165
398
32
-15
17
61
26
3
1
107
271
33
-18
15
85
32
2
1
135
321
38
-21
17
102
43
2
3
166
405
4
55
14
58
13
51
11
55
16
5
80
22
11
104
13
1
78
17
10
93
1
62
2
29
40
134
102
2
0
104
185
155
9
0
164
268
103
104
114
103
181
104
197
114
249
239
Page 5
DXP Analysis
Stockholders' equity
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
0
0
55
48
-1
102
286
0
0
56
74
0
0
58
32
0
0
73
51
130
398
0
90
271
124
321
0
0
75
83
-1
0
157
405
(Morningstar.com, 2012)
Page 6
DXP Analysis
DXP Enterprises, Inc. (DXPE) Statement of Cash Flow
Fiscal year ends in December. USD in millions except per
share data.
Cash Flows From Operating Activities
Net income
Depreciation & amortization
Investment/asset impairment charges
Deferred income taxes
Stock based compensation
Accounts receivable
Inventory
Prepaid expenses
Other working capital
Other non-cash items
Net cash provided by operating activities
Cash Flows From Investing Activities
Investments in property, plant, and equipment
Property, plant, and equipment reductions
Acquisitions, net
Purchases of investments
Net cash used for investing activities
Cash Flows From Financing Activities
Debt issued
Debt repayment
Common stock issued
Common stock repurchased
Excess tax benefit from stock based compensation
Dividend paid
Other financing activities
Net cash provided by (used for) financing activities
Net change in cash
Cash at beginning of period
Cash at end of period
Free Cash Flow
Operating cash flow
Capital expenditure
Free cash flow
200712
200812
200912
5
1
26
11
0
0
-3
-3
-2
0
-1
201012
201112
TTM
19
10
31
10
31
10
-11
0
-7
-1
18
-42
11
67
-17
2
24
33
-2
-24
0
52
3
1
-15
2
1
3
0
24
2
1
-22
-4
-3
10
0
26
2
1
-22
-4
-3
10
0
26
-1
1
-6
-5
0
-74
-2
0
0
-1
1
-18
-4
-4
-6
-79
-2
-18
-18
-2
-24
-18
-2
-24
134
-187
141
-149
1
224 224
-224 -224
0
0
5
5
-2
2
1
0
62
62
2
4
6
0
0
0
-53
-3
6
2
-1
-1
-2
18
-5
13
52
-2
50
0
0
0
-7
-2
2
1
24
-1
23
(Morningstar.com, 2012)
Page 7
-1
0
0
-1
0
0
-1
1
1
2
-1
1
1
2
26
-4
22
26
-4
22
DXP Analysis
DXP Enterprises, Inc. (DXPE) Capital Structure 2011
Fiscal year ends in December. USD in millions
Cash
Debt
Revolver
Total Senior Debt
Other Debt
Total Debt
Shareholder's Equity
Total Capitalization
LTM EBITDA
Total Debt/Total Capitalization
Total Debt/ LTM EBITDA
1.5
110.8
110.8
4.1
114.9
156.7
271.6
77.6
42.3%
1.5X
(DXPE.com, 2012)
*Note: Statement of Owner’s Equity not available. This chart is included to show Shareholder
equity and additional financial position of DXP Enterprises
Page 8
DXP Analysis
Financial Statement Summary
The 2011 Income Statement for DXP Enterprises lists Revenue of $807 million, Cost of
Revenue $575 million leaving Gross Profit of $232 million. EBITDA of $65.6 million less
taxes, amortization, and depreciation leave Net Income of $31.5 million in 2011. In the 5 year
period 2007-2011, DXP has shown steady growth in Net Income with the exception of the year
2009 in which they suffered a Net Loss of $42 million. This drastic downturn was during time of
generally downturn and distress in the U.S. economy. Net income in 2007 was $17 million and
has increased 82% from the period 2007-2011 overall.
The 2011 Balance Sheet lists Total Assets of $405 million with $239 million in Current
Assets and $166 million in non-current assets. The majority of current assets lie in accounts
receivable with $137 million with cash and cash equivalents of just $2 million. The liabilities for
2011 were short term debt of $1 million, accounts payable of $62 million, and long term debt of
$114 million. These balances indicate that the company relies heavily on trade credit versus
utilizing debt for financing operations. Short term debt is very low and long term debt is much
higher which indicates the company has taken a moderate approach to its Current Assets
Financing policy. By taking out more long term debt, the company has a more predictable and
stable interest rate and will likely enjoy a better interest rate than if they had relied more on short
term debt. Short term debt is usually more costly with higher interest rates and more risky
(Ehrhardt & Brigham, 2011).
The statement of cash flow shows the cash coming in and being expended during the
period for business activities. The net cash from operating activities in 2011 was $26 million.
Page 9
DXP Analysis
Debt issued versus debt repaid in the period was $224 million in and out, with a net effect of
zero. Over the 5 year period 2007-2011 the operating cash flow was positive in all years except
2007 which was negative $1 million. During the economic downturn of 2009, operating cash
flow was $52 million even though the balance sheet net income was a loss for that year. This
shows that even during times of economic trouble the company was still able to keep a positive
free cash flow. In the years 2010 and 2011, operating cash flow was only $24 million and $26
million respectively but during these years DXP Enterprises acquired several companies for
which they paid cash rather than financing the purchases.
Ratio Analysis
A financial analysis comparing DXP Enterprises to the industry leader MSC Industrial
Supply (MSM) will show where the firm stands against the biggest player in the sector. All
financial data was retrieved from Morningstar.com for the year 2011.
Diagnostic category
Liquidity of short term assets
DXPE
MSM
Current ratio
Cash ratio
Quick ratio
1.8
0.01
1.03
7.2
0.56
2.47
Debt ratio
Debt-equity ratio
0.61
1.59
0.20
0.25
Long term debt paying ability
Times interest earned
No interest
16.3925 expense 2011
Profit margin
ROA
ROE
3.90%
8.64%
22.39%
11.10%
19.33%
23.55%
2.22
6.78
6.82
1.74
3.41
8.07
Profitability
Asset Utilization/management efficiency
Total asset turnover
Inventory turnover
Accounts receivable turnover
Market Measures
Page 10
DXP Analysis
Price/earnings ratio
Dividend payout
18.82
0.28
20.23
0.06
(Morningstar.com, 2012 & Yahoo Finance 2012)
Industry Ratio Comparison
DXPE
P/E
Net profit margin
Market cap
15.54
3.90%
$324.41 million
Industry
Average
21.2
5.40%
$418.1 billion
(Morningstar.com, 2012 and Yahoo Finance 2012)
Stock Price History/Forecast
(Yahoo Finance, 2012)
Page 11
DXP Analysis
Symbol
DXPE
ATM Call
Load Data for Symbol
Price
DXP ENTERPRISES INC
Price
Expected Price 43.89
Rate
43.04
Expiration
3
Nov '12
Days
Next Div Date
239
NTM
Volatility
Next Amt
0.381498
0
Enter a Lower and Upper bound:
Select strike
Lower Bound
40
40
Select strike
Upper Bound
45
45
43.7855%
%
Std Deviation
13.55
Option Price
5.525
Implied Vol
0.381
Delta
0.585
Gamma
0.030
Rho
0.128
Theta
-0.012
Vega
0.138
Compute
Lower Bound (Put)
Probability that the future price is
Below Lower Bound
43.04
Between Bounds
Above Upper Bound
15.4644%
40.7501%
Option Price
3.480
Implied Vol
0.381
Delta
-0.337
Gamma
0.028
Rho
-0.118
Theta
-0.010
Vega
0.128
Page 12
DXP Analysis
Upper Bound (Call)
The probability calculations are approximations and are subject to data errors,
computation error, variations in prices, bid and ask spreads, interest rates, and future
undeclared dividends.
This calculator estimates the probability of future prices based on current market
conditions or user entered data. Factors used as a basis for the probability computations
are subject to change. Read the full disclaimer.
(Optionistics.com, 2012)
Option Price
4.700
Implied Vol
0.381
Delta
0.527
Gamma
0.030
Rho
0.117
Theta
-0.012
Vega
0.141
Calculator Help
Based on the equation from the 5 year stock price analysis, the future value of stock price was
unreasonably high $4,425. Based on the caluclator available from Optionistics.com, the
estimated stock price in November 2012 was $43.89. The stock price estimate from the
Optionistics.com calculator is more reasonable than the result I reached based on the excel
calculation.
Other Pertinent Information
DXP Enterprises has been aggressively expaning its operations through acquisition of
other companies. They have acquired 17 other companies since 2004. In the annual report
published on their website, the company indicates that it plans to continue an aggressive
approach to expansion (Morningstar.com, 2012).
DXP is currently a named party in a lawsuit for a defective product/breach of contract
along with Ameron International, their vendor of fiberglass piping. The suit is asking for $20
million in damages and DXP’s insurance coverage is only $6 million. If they are liable this
Page 13
DXP Analysis
could put the company in a tight position. DXP stated in their form 10-K that they feel the claim
is without merit and feel confident they will not be held liable (Morningstar.com, 2012).
Recommendation
Based upon the information detailed in this analysis I would recommend this stock as a
good buy particularly for a buy and hold investor. The ratio analysis showed that the company is
in a fair position and coupled with the knowledge of their aggressive acquistion strategy over the
last few years is a reason why ratios such as cash was down because they purchased the other
companies with cash rather than taking out debt. Compared to the industry leader MSC
Industrial Supply, DXP had a price to earnings ratio comparable to the industry leader along with
a higher dividend payout. The current stock price for MSC Industrial Supply is $77.68 per share
with DXP’s price per share nearly half of that it is more bang for your buck. The company
acknowledged areas of risk in its form 10-K which shows they are aware of risks and knowing
these they are more likely to be prepared for an adverse situation. Yahoo Finance also named
DXP Enterprises in the top 5 stock performers for their industry and many articles on the internet
name DXP as an under rated investment opportunity.
Page 14
DXP Analysis
References
DXPE.com (2012). DXP the industrial distribution experts. Retrieved April 15, 2012 from
http://www.dxpe.com/Docs/DXP_Management_Presentation_MAR_2012.pdf
Ehrhardt, M. and Brigham, E. (2011). Corporate finance. Mason, OH: South-Western.
Morningstar.com (2012) DXP enterprises. Retrieved April 15, 2012 from
http://quote.morningstar.com/stock/s.aspx?t=DXPE
Morningstar.com (2012). MSC industrial direct co, inc. Retrieved April 15, 2012 from
http://quote.morningstar.com/stock/s.aspx?t=MSM
Optionistics.com (2012) Probability calculator. Retrieved April 15, 2012 from
http://www.optionistics.com/f/probability_calculator
Yahoo Finance (2012) DXP enterprises, inc. Retrieved April 15, 2012 from
http://finance.yahoo.com/q?s=DXPE
Page 15