Sonic Corporation (SONC), Cyberonics, Inc. (CYBX): Three Future Winners You Should Look At

Cooper Tire & Rubber Company (NYSE:CTB)

Market Cap. $1.6B
Average Share Volume (per day) 600,000

Cooper Tyre and rubber is involved in the manufacture and selling of tyres across North America and internationally. Although tyres are generally thought of as cyclical, due to their relationship with auto manufacturing, Cooper has shown that a good company can still make profits in a slow market. Over the past five years, Cooper has managed to drive up sales and EPS 9% and 42%, respectively, despite the economic headwinds.

Indeed, return on shareholder equity has averaged 30% a year for the past three years, and the five year ROE average is 13.5%. During 2012, Cooper’s shareholder equity was $900 million, and the company’s net income was $220 million, giving a ROE of 24%.

In addition to growing sales and high return on equity, Cooper has its debt under control.

$US MILLIONS 2010 2011 2012
Cash and Short Term Investments $413 $233 $350
Total Debt $473 $482 $370
Net Debt $60 $249 $20

Cooper’s net debt grew to $250 million in 2011, but the company’s cash position grew rapidly in 2012. During 2012, Cooper paid off around $100 million of short-term debt, whilst improving the company’s cash position by $117 million.

I believe, Cooper will surge into a net cash position next year if the company continues to generate cash at its current rate. Indeed, Cooper’s cash flows highlight the company’s increasing profitability.

$US MILLIONS 2010 2011 first 3 quarters of 2012
Net Operating Cash Flow $174 $125 $290
Net Investing Cash Flow $117 $169 $150
Free Cash Flow $29 $56 $150
Issue/(reduction of debt) ($32) $6 ($100)
Stock buyback $8 $112

Cooper has been highly cash generative over 2012, thanks in part to the falling price of rubber. The company has also seen increasing demand from the auto sector. The company’s management has not misused the cash from this good year, capitalizing on the opportunity to buy back debt and the same can be seen in 2010. During 2011, Cooper used excess cash to buy back stock – in all the company has a strong consistent cash flow.

$US MILLIONS 2008 2009 2010 2011
Current Assets $1,044 $1,131 $1,340 $1,263
Inventories $420 $300 $386 $465
Current Liabilities $707 $636 $694 $651
Current Ratio 1.5 1.8 1.9 1.9
Quick Ratio 0.9 1.3 1.4 1.2

Cooper has 36% of its current assets tied up in inventories. However, even with inventories stripped out, the company has a quick ratio of greater than 1, signifying good liquidity and plenty of cover for liabilities due within twelve months. On the subject of shareholder returns, Cooper is returning cash to shareholders. Since 2009, the company has returned $200 million to shareholders, which is about 30% of the company’s net income of $670 million over the same period.

Sonic Corporation (NASDAQ:SONC)

Market Cap. $611M
Average Share Volume (per day) 500,000

Sonic operates a chain of drive in restaurants throughout the U.S. The company both owns and leases restaurants, and was founded in 1953. Sonic is the smallest and oldest of the three firms in this article.

Shareholder equity at Sonic Corporation (NASDAQ:SONC) was negative until 2010, due to a high amount of borrowing. However, the company has put itself back together, and shareholder equity totalled $60 million at the end of 2012. Sonic earned net income of $40 million on this, giving a ROE of 67%. Since the company returned to positive shareholder equity in 2010, Sonic has achieved an average ROE of 50%.