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Carlisle (CSL) is a diversified manufacturing and distribution company with Construction Materials consisting of 25% of 02 sales (non-residential roofing systems, coatings and waterproofing) Industrial Components 32% (braking products, time and wheel and cable assemblies), 12% Auto Components (engineered plastic and rubber products) and All Other 31% (specialty trailers and food processing equipment).

Based on the 3/7/03 Value Line report, CSL partial bottom line recovery in 2002 helped keep the stock price up based on acquisition and rationalization (A&R activity) of Dayco Power Transmission and MiraDri, as well as the elimination goodwill amortization.

Profit forecasts look pretty good into 2003 due to re-roofing business demand caused by severe weather conditions in the Northeast. Also, new products in the tire and wheel business should add to the top line. The divestiture of underperforming assets should help improve operations by allowing the company to focus on stronger, higher-growth markets that contribute more to profitability. The only drawback would be getting a fair price for the assets being sold in this depressed economic climate.

Looking at last year (2002) numbers you can figure that if CSL per share earnings are 2.37 for the 2002 fiscal year, and earnings continue to grow at a rate of 11.61% annually, as they have for the past 10 years, and the company continues to pay out dividends at a rate of 30.4% per share, then we can project that in ten years CSL will have per share earnings of $8.16 (pre-split), based on liner projections.

If the stock is trading at its average PE ratio that it has for the last 10 years, a PE of 15.74, then we can calculate that the market price of a share of this stock in 10 years will be $128.44 per share (pre-split).

If you can buy a share of this company now at $43.00 and in 10 years have it worth $143.08 (pre-split and after adding in $14.64 per share dividend pool if EPS continue to grow at 11.61% compounded annually) then your projected pre-tax annual compounded rate of return would be approximately 11.40% at the current share price.

With a Sustainability Score (measures ability to sustain competitive advantage)of 13 (30 max) CSL revenue grew at 7% over last year, with Gross Margins of 18.24%
and Net Margins of 4%.

Cash to Total Debt Ratio is currently 0.48 (you want this to be over 1.50) representing a 16% change over last year and reflects good attention to debit reduction. The Fee Cash Flow Margin for CSL is 9% representing a 10% change over last year.

Over the last 10 years, management has been able to translate $1.00 in retained earnings to $1.90 in Market Value for CSL. Average Return on Equity over the past 10 years has been 15.80% compared to the current ROE of 7.20% for the S&P 500.

A well-managed company should achieve good returns on equity while employing little or no debt. Comparing the Cash to Debt Ratio (.48) to a ROE of 13.10 for this year, we see a ratio of 27.48 ... the closer to 1 the better. More importantly, however, it is "owner-earnings" or Return on Invested Capital that tells us the true story. Its not profit margins alone that determine a company desirability, but how much cash can be produced by each dollar invested by the "owners". The true test of management is how well they have grown "owner-earnings" over time. Now with CSL we see that over the last 10 yrs management has not been able to grow "owner-earnings (ROIC) as evidenced by
-1.90% decline over the last 10 years. Over the last 5 quarters we see the Flowie changing from 2.25 to the current 1.85 (ideally you want this to be <1.5) so the trend is going down which is good and reflects management is doing a good job of managing working capital through the company

CSL can be considered a "Decent" company and deserving of a 6 year Excess Return Period over the Weighted Average Cost of Capital on a Free Cash Flow basis. With a "consensus opinion" projected 5 year EPS growth rate of 15% revised down to 10% and a most recent fiscal year NOPM (net operating profit margin) of 5.61% and a 30 Yr T-Bond rate of 5.38% plus a Beta of 1.1% and an Equity Risk Premium of 3.00% one can conclude that the Weighted Average Cost of Capital is 7.61 percent, given the most recent fiscal year Revenue numbers, Tax, Depreciation, Investment and Working Capital Rates (as a % of Revenue) plus a 1.5% Bond Yield Spread and Debt Levels and Senior Claims.

Thus, CSL an Intrinsic Value of roughly $29.00 per share. At $43.00 per share (as of 5/16/03) per share the Margin of Safety is about 32%.

I like the Free Cash Flow Margin increasing over the last 5 quarters, Margin of Safety is OK and management is doing a good job of reducing debt and improving flow of working capital through the firm.

If I had to guess, I would say the stock look like a 2x7y if management can increase EPS by about 10% a year, going forward. A lot of this depends, of course, on construction and automotive markets which IMHO, will do OK as the economy gets back on track.

Cheers …

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