Mac-Gray Is Cleaning Up In The Laundry Room

A Winning Cycle
Micro Caps get little respect on Wall Street, so it's no surprise that Mac-Gray (TUC ) -- a little-known Big Board stock in a ho-hum business with a market cap of $120 million -- has no following at all. A top provider of laundry facilities, and manager of them, for institutional housing (apartments, college dorms, military bases, and hotels), Mac-Gray has been building up its business, notes Robert Sullivan of Satuit Capital Micro Cap Fund (SATMX ), which owns shares. Mac-Gray's big revenue producers are long-term contracts to run laundry rooms with coin- or card-operated machines. Revenues have been quite strong, notes Sullivan, so he expects profit margins to expand for more earnings growth. Mac-Gray stock has been on the rise -- from 6.35 a year ago to 9.42 on July 6. Mac-Gray is cheap, says Sullivan, though it is trading at 21 times his 2005 earnings estimate of 45 cents a share on sales of $250 million. Why? It has solid prospects as the dominant player, he says. For 2006, he expects earnings of 54 cents on $280 million, vs. 2004's 36 cents on $182 million. In 12 months, Sullivan sees the stock at 13, or 24 times his 2006 forecast.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

    Before it's here, it's on the Bloomberg Terminal.