Kang_CSL

Kevin M Kang Student Research This report is published for educational purposes only by

students and teachers in the Roland George Investment

Program.

Important disclosures appear at the back of this report 1

Ticker: CSL (NYSE) Recommendation: Buy 1200 Shares

Price: $51.10 (As of 10/22/12) Price Target: $69.22 Earnings/Share March June September December Year P/E Ratio

2010A 0.40 0.66 0.76 0.51 2.33 17.58 2011AA 0.54 0.87 0.89 0.63 2.93 15.17 2012A/E 0.94 1.39 1.18 0.82 4.33 13.41 2013E 1.00 1.43 1.26 0.92 4.61 12.50

* Estimates based on price target and consensus earnings

Highlights

Strong 3rd Quarter Results: Carlisle Companies Inc. (CSL) reported net sales from continuing

operations of $910.2 million for the quarter ended September 30, 2012, a 4.6% increase. Income

from continuing operations in the third quarter 2012 rose 30% to $69.7 million, or $1.08 per diluted

share. Net sales from continuing operations was increased by 14.3%, or $2.78 billion over the prior

year period in the third quarter.

Strong Free Cash Flow: The company reported $136 million in free cash flow during the third

quarter of 2012, 50% increase YoY. Coming out of recession in 2010, the company’s free cash

flow grew 160.75% YoY, or $68.8 million. The last 12 months, the company’s free cash flow grew

177.36% YoY, or $159.1 million.

Profitable Acquisitions: For the nine months ended September 30, 2012 net sales from continuing

operations reflected 5.3% acquisition growth. Carlisle Interconnect Technologies’ acquisition

growth was 31% in the third quarter. The acquisition of Tri-Star Electronics contributed $23.2

million to net sales. Carlisle has been aggressive in acquisition markets to expand its market share

to Europe. It has acquired Hertalan Holding B.V. and PDT Phoenix GmbH providing a solid

manufacturing and knowledge base for EPDM roofing products in Europe and provides an

established distribution network throughout Europe.

ABI’s Largest Gain Signals US Construction Optimism: 47% of Carlisle’s annual revenue

comes from Construction Materials business. The Architecture Billings Index (ABI), a leading

indicator of non-residential construction, rose to 51.6 in September, the highest since 2010 as

overseas production returns to the USA. This will positively affect Carlisle’s revenue.

Interconnect Technologies Outperforming: Net sales in the third quarter of 2012 grew 52% to

$115.0 million on organic sales growth of 21% and acquisition growth of 31%. Carlisle

Interconnect Technologies continued to experience healthy demand in the commercial aerospace

market, with increased sales in this market, up 25%.

Market Profile (As of 10/22/12)

52 Week Price Range $37.17 - $56.67

Average Daily Volume 373,303

Beta 1.30

Dividend Yield (est.) 0.80 (1.50%)

Shares Outstanding 62.6 M

Market Capitalization $3.20 B

Book Value per Share $26.45

Debt to Equity 50.80%

Return on Equity 12.70%

Current Ratio 1.88

Date:

10/31/2012

Industry: Industrial Conglomerate

CSL 5-year Price Chart vs S&P 500

Kevin M Kang Roland George Investment Program

Stetson University Student Research

10/31/12

2

Investment Summary

Carlisle Companies Incorporation has always generated above average returns for investors and the company

will continue to do so for Roland George Investments Programs as well. Carlisle’s revenues are generated

from five successful diversified business segments and even though its major business is cyclical, there are

major signs that Carlisle will continue to outperform in the market.

Generating Constant Returns for Its Shareholders: Carlisle has always boasted strong financial

conditions. Its revenues, assets, and book value per share grew 27.6%, 24%, and 11% respectively in a

year. Even though Carlisle is not a component of S&P 500, its market cap is larger than the smaller end

of the S&P 500. Furthermore, its year-to-date return of 24% (vs. 12.26%, S&P500), its 5-year return of

11% (vs. -17.57%, S&P500), and its 10-year return of 209% (vs. 57%, S&P 500) shows that Carlisle

Companies Inc. has constantly outperformed S&P 500. Also, Carlisle has increased its dividend for the

past 36 consecutive years. During 3Q12, Carlisle has declared an 11.1% increase in its quarterly

dividend, to $0.20 a share from $0.18 a share, and paid down $125 million in debt. Carlisle has a

conservative debt to capital ratio of 24% with plenty of bank credit available – $430.0 million and

uncommitted line of credit of $45.0 million.

Strong Free Cash Flow: After recession, the management has made continuous effort to increase its free

cash flow level. In 2011, the company generated $111.6 million in free cash flow, 161% increase YoY,

or $68.8 million. The past 12 months, the company added $159.1 million in free cash flow to $270.7

million, 177% increase YoY. Its strong free cash flow is generated from its increased net sales in every

five segment of the business, noticeably 15.8% net sale increase in Construction Materials segment and

59.8% net sale increase in Interconnect Technologies segment. Also, the management’s effort to lower

its inventory and debt level and to increase productivity contributed to the company’s strong free cash

flow. Rising cash flow often signifies rising earnings and it puts the company in a position to reward its

investors swiftly.

ABI’s Largest Gain May Benefit Carlisle: 47% of Carlisle’s total revenue came from Construction

Materials segment, which means Carlisle’s revenue is correlated to the performance of the construction

industry. The Architecture Billings Index (ABI), a leading indicator of non-residential construction, rose

to 51.6 in September, the highest since 2010. Residential construction rose the most to 57.3 from 55.4,

the highest since 2005. This indicates that Carlisle’s Construction Materials’ sales will continue to grow

in the future

Carlisle Interconnect Technologies Business Growth: Carlisle’s Interconnect Technologies (CIT)

segment has boasted one of the fastest growth – 15% 3-year growth. CIT provides leading-edge designs

in wire and cable for commercial and military aircraft, in-flight entertainment systems and

communications systems. Therefore, CIT’s revenue is correlated to aerospace industry. There has been

increased demand for parts and equipment for commercial aircrafts with increased production by both

Boeing and Airbus. CIT generates a million dollars for every plane produced. With Boeing facing

increased market demand for its new 787 and Boeing ramping up its 777 production to record rate,

Carlisle’s Interconnect Technologies segment is in the sweet spot to continuously grow the next coming

years.

Continuous Growth through acquisitions: First traded on June 1, 1960, Carlisle has strong financials and

has experienced an appreciation in its stock price of more than 7,900% the past 34 years. Acquisitions

have been extremely successful for Carlisle. Acquisition is one of the most important growth prospects

of Carlisle Companies Inc. In 2010, the company acquired Hawk Corporation to provide a broader line

of attractive products and increasing presence within key emerging markets. The company acquired

PDT in 2011 and Hertalan in 2012 to efficiently serve European customers in the EPDM and single-ply

roofing market in Europe with local manufacturing and established distribution channels, which enhance

Carlisle’s goal of expanding its global presence. Also, in 2011 the company acquired Tri-Star to better

serve the company’s existing commercial aerospace and industrial customers with higher-end products.

Expanding its global exposure: 81% of Carlisle’s total revenue was generated in the United States.

However, Carlisle has made constant effort to expand its market shares in Europe and Asia. Even

though, revenues from Europe and Asia contributed 8% and 3% respectively, it reflects 34% 3-year

revenue growth in Europe and 62% 3-year revenue growth in Asia. Carlisle has acquired Hertalan and

PDT in 2011 to strengthen the company’s ability to efficiently serve European customers in the EPDM



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and singly-ply roofing market in Europe with local manufacturing and established distribution channels.

Exhibit 1: CSL 20-Year Price Chart

Business Description

Carlisle Companies Incorporated (Carlisle) is a holding company for Carlisle Corporation., and its wholly

owned subsidiaries. Carlisle is a diversified manufacturing company that designs, manufactures and markets

a wide range of products that serve a broad range of niche markets including commercial roofing, energy,

agriculture, lawn and garden, mining and construction equipment, aerospace and electronics, dining and food

delivery, and healthcare. Carlisle is consisted of five segments, which manufacture and distribute a range of

products. Its segments include Carlisle Construction Materials (CCM), Carlisle Transportation Products

(CTP), Carlisle Brake & Friction (CBF), Carlisle Interconnect Technologies (CIT) and Carlisle FoodService

Products (CFSP). Through the group of decentralized operating companies led by entrepreneurial

management teams, it brings innovative product solutions to solve the challenges its customers face. Its

employees worldwide, generated $3.2 billion in net sales in 2011, are focused on continuously improving the

value of the Carlisle brand by developing the best products, ensuring the highest quality and providing

unequaled customer service in the many industries it serves. Carlisle has made constant effort to stay

diversified and to stay as a leader in the industry by acquiring many companies over the years. On August 11,

2011 the Company acquired PDT Phoenix GmbH (PDT). On December 1, 2010, the Company completed the

acquisition of all the outstanding equity of Hawk Corporation (Hawk). On December 2, 2011, it acquired

TSEI Holdings, Inc. (Tri-Star). On January 2, 2012, the Company sold the PDT’s non-roofing and

waterproofing unit. In March 2012, the Company purchased Hertalan Holding B.V.

Carlisle Construction Materials (CCM) – the principal products of this segment are rubber (EPDM) and

thermoplastic polyolefin (TPO) roofing membranes used predominantly on non-residential low-sloped roofs,

related roofing accessories, including flashing, fasteners, sealing tapes, coating and waterproofing, and

insulation products. The markets served include new construction, re-roofing and maintenance of low-sloped

roofs, water containment, HVAC sealants, and coating and waterproofing.

47% of Carlisle’s total revenue comes from its Construction Materials (“CCM”). CCM’s sales grew 3.3%

YoY and it reflected its organic sales growth of 1.3% and its acquisition growth of 2.4%. Sales at Insulfoam,

its rigid foam insulation business, were up by 13% during 3Q12, reflecting increased activity in residential

construction. Acquisitions contributed $10.5 million to sales during 3Q12 reflecting one month’s results for

PDT, which was acquired on August 1, 2011, and three months of results for Hertalan, which was acquired

on March 9, 2012.

For the first nine months of 2012, CCM’s sales increase consisted of organic sales growth of 11.0% and

acquisition growth of 5.0%. Organic sales growth of 11.0% was primarily driven by higher selling price and

increased demand for poloyiso insulation products. Sales of roofing membrane products were higher in the

1Q12 but were offset by lower roofing demand in later periods due to reduction in reroofing volume.

CCM has significant capital expenditure projects underway to address polyiso insulation market demand, to

provide better service to our customers and to improve margins. In the 4Q12, CCM acquired land and

commenced construction on a new 407,000 sq. ft. polyiso plant in Puyallup, WA in order to service

increasing demand for energy efficient insulation solutions in the Pacific-Northwest region. CCM anticipates

the plant will be operational in the first quarter of 2013. In 2012, CCM also commenced a capital project to

relocate polyiso operations at its current 168,000 sq. ft. Kingston, NY location to a new 300,000 sq. ft.

facility in Montgomery, NY to serve the growing polyiso market in the northeast United States in a more cost

effective, energy efficient and higher quality manner. The project is expected to be completed by the second

quarter of 2013.



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CCM’s net sales and EBIT are generally higher in the 2Q and 3Q of the year due to increased construction

activity during these periods. Over the last several years, CCM’s commercial roofing business has shifted

significantly towards re-roofing, which currently constitutes approximately 75% of its commercial activity.

The re-roofing market is less cyclical and relatively more stable than the new construction market due to the

large base of installed roofs requiring replacement in a given year. Also, while prices for some of CCM’s key

raw materials have recently declined, costs could be increasing in the near future for certain of CCM’s key

raw materials, particularly benzene based inputs.

CCM’s presence in Europe has grown significantly with the PDT and Hertalan acquisitions although total

sales into Europe comprise less than 10% of CCM’s overall revenue. Since the acquisitions of PDT and

Hertalan, CCM has been integrating all of its European operations. While the European region is in economic

recession, the market in Europe for CCM’s singly-ply roofing application is growing in replacement of

declining demand for modified bitumen roofing systems.

Carlisle Transportation Products (CTP) – the principal products of this segment include bias-ply, steel

belted radial trailer tires, stamped or roll-formed steel wheels, tires, and tire and wheel assemblies, as well as

industrial belts and related components. The markets served include lawn and garden, power sports, high-

speed trailer, agriculture and construction.

Carlisle Transportation Products (“CTP”) generates 23% of Carlisle’s total revenue. CTP’s Earnings before

interest and income taxes increased 164.4% YoY. CTP experienced solid growth in its high speed trailer and

power sports markets of 18% and 9%, respectively, reflecting continued progress on strengthening sales

channels. CTP continues to build its sales to the higher margin replacement channel market where sales

volume was up by 7% YoY. CTP achieved solid improvement in its EBIT performance due to lower raw

material and freight costs, savings generated from the Carlisle Operating System and non-recurrence of plant

start-up inefficiencies from 2011.

Net sales and EBIT for CTP are generally higher in the first six months of the year due to peak sales volumes

in the outdoor power equipment product line. While CTP has been increasing sales to the high speed trailer,

power sports and related aftermarkets during 2012, outdoor power equipment market may face lower demand

in 4Q12.

Carlisle Brake & Friction (CBF) – the principal products of this segment include high-performance brakes

and friction material, styled wheels, and clutch and transmission friction material for the mining,

construction, aerospace, agriculture, motor sports, and alternative energy markets.

Carlisle Brake & Friction (“CBF”) contributes 14% of Carlisle’s total revenue. Demand for CBF’s braking

and friction applications to the construction market declined by 20%, reflecting slower worldwide economic

conditions. CBF has exited certain low margin or unprofitable product lines which reduced sales by $3.1

million during 3Q12. However, there was an increase in sales to the mining market of 4% and to the

agriculture market of 10%.

CBF has experienced declining demand for its off-highway braking applications during 2012 due to lower

growth in China, recessionary conditions in the European market and economic uncertainty resulting in

reduced spending on infrastructure and construction projects. However, the long term outlook for CBF

appears favorable due to the specialized nature of its friction and off-highway braking applications, long term

demand for infrastructure spending in developing regions such as Asia Pacific and South America and

geographic diversity of CBF’s customer base. For the near term, CBF may generate lower sales, potentially

into 2013. However, CBF is taking actions to reduce operating costs in light of lower sales levels.

Carlisle Interconnect Technologies (CIT) – the principal products of this segment are high-performance

wire, cable, connectors, contacts and cable assemblies primarily for the aerospace, defense electronics, and

test and measurement equipment markets.

Carlisle Interconnect Technologies is one of the fastest growing segments of Carlisle Companies. CIT

generates 9% of Carlisle’s revenue but the revenue from CIT is expected to rise with increased sales of

Boeing 787 aircrafts. CIT’s sales grew 52% and it reflected organic growth of 21% and sales from the Tri-

Star acquisition of 31%, or $23.3 million. Organic growth at CIT was driven by 25% growth in the aerospace

market. CIT continues to achieve higher sales for its in-flight entertainment applications, sales related to the

Boeing 787 program and higher demand for other Boeing and Airbus programs. For the first nine months of



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2012, CIT’s sales grew 60%, or $127.4 million YoY, which reflected high aerospace demand. CIT’s EBIT

margin was increased by 72%, or $7.8 million YoY primarily on higher sales volume. CIT’s sales is expected

to continuously grow at a strong rate above U.S. GDP levels. The long-term growth prospects for the

aerospace market continue to be favorable. Demand by airlines for more fuel efficient aircraft, for which CIT

provide many applications, is growing at a high rate worldwide. For every plane manufactured by Boeing or

Airbus, CIT generates a million dollars, which put CIT in the sweet spot for in the long run.

Carlisle FoodService Products (CFSP) – the principal products of this segment include commercial and

institutional foodservice permanentware, table coverings, cookware, catering equipment, fiberglass and

composite material trays and dishes, industrial brooms, brushes, mops, and rotary brushes for commercial and

non-commercial foodservice operators and sanitary maintenance professionals.

Carlisle FoodService Products (“CFSP”) generates 7% of Carlisle’s total revenue. For the first nine months of

2012, sales grew 2% with higher selling price. As part of its performance improvement strategy, CFSP

commenced restructuring actions related to closing or consolidating certain of its manufacturing and

distribution operations that were unprofitable and exiting the flameless chafer product line. CFSP recorded

$6.9 million in charges during the third quarter of 2012 for these activities, including $3.5 million for

impairment of long-lived assets and a $2.5 million impairment charge related to the abandonment of the

flameless chafer product line. Additional costs related to these activities are expected to be $1.2 million in the

4Q12 and the projects expected to be substantially complete by the end of 2012. Annualized savings from the

exit of these activities are estimated to be $5 million beginning in 2013.

Sales for CFSP tend to be marginally stronger in the second and third quarters. Growth rates in the

foodservice product sector have been low due to high unemployment impacting consumer confidence. Recent

restaurant industry indicators show positive trends in the same store sale and operator sentiment; however,

the outlook remains cautious for the restaurant market. CFSP has a number of action plans underway to

strengthen sales channels and improve operating and earnings performance.

Business Strategy

Focused Differentiation Strategy: Carlisle strives to be the market leader in the various niche markets it

serves. The company is dedicated to achieving low cost positions and providing service excellence

based on, among other things, superior quality, on-time delivery and short cycle times. The presidents of

the various operating companies are given considerable autonomy and have a significant level of

independent responsibility for their businesses and their performance. The company believes that this

structure encourages entrepreneurial action and enhances responsive decision making thereby enabling

each operation to better serve its customers and react quickly to its customer’s needs.

Carlisle Operating System: Carlisle’s management focuses on maintaining a strong and flexible balance

sheet, year-over-year improvement in sales, earnings before interest and income taxes(“EBIT”) margins

and earnings, globalization, and reducing working capital (defined as Receivables, Inventories, net of

Accounts payable) as a percentage of Net Sales. Resources are allocated among the operating companies

based on management’s assessment of their ability to obtain leadership positions and competitive

advantages in the markets they serve. During 2008, Carlisle began the implementation of the Carlisle

Operating System, a manufacturing structure and strategy deployment system based on lean enterprise

and six sigma principles. The purpose of the Carlisle Operating System is to eliminate waste in all

production and business processes, improve manufacturing efficiencies to increase productivity, and to

increase EBIT margins and improve cash conversion. Improvements are not limited to production areas,

as Carlisle Operation System is also driving improvements in new product innovation, engineering,

supply chain management, warranty and product rationalization. Carlisle Operating System is creating a

culture of continuous improvement across all aspects of the company’s business operations.

Acquisitions and Divestitures: Carlisle has a long-standing acquisition strategy. Traditionally, the

company has focused on acquiring new businesses that can be added to existing operations, or “bolt-

ons”. In addition, the company considers acquiring new businesses that can be operate independently

from other Carlisle companies. Factors considered by the Company in making an acquisition include

consolidation opportunities, technology, customer dispersion, operating capabilities and growth

potential.

On March 9, 2012, Carlisle acquired 100% of the equity of Hertalan Holding B.V. (“Hertalan”) for a



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total cash purchase price of €37.3 million, or $48.9 million. The acquisition of Hertalan strengthens the

company’s ability to efficiently serve European customers in the EPDM roofing market in Europe with

local manufacturing and established distribution channels, which enhance Carlisle’s goal of expanding

its global presence. Hertalan operates within the Construction Materials segment. The preliminary

goodwill recognized in the acquisition of Hertalan is attributable to the workforce of Hertalan, the solid

financial performance of this leading manufacturer of EPDM roofing and waterproofing systems and the

significant strategic value of the business to Carlisle. The European market shows favorable trends

towards EPDM roofing applications and Carlisle can provide additional product development and other

growth resources to Hertalan. Hertalan contributed revenues of $17.7 million.

On December 2, 2011, Carlisle acquired 100% of the equity of TSEI Holdings, Inc. (“Tri-Star”) for a

total cash purchase price of $284.8 million. The acquisition of Tri-Star adds capabilities and technology

to strengthen the company’s interconnect products business by expanding its product and service range

to its customers. Tri-Star operates within the Interconnect Technologies segment. Tri-Star brings

additional high-end connector products and qualified positions to serve the company’s existing

commercial aerospace and industrial customers. Tri-Star will also supply the company with efficient

machining and plating processes that will lower costs and improve product quality. Favorable trends in

the commercial aerospace markets and increasing electronic content in the several industrial end markets

provide a solid growth platform for the Interconnect Technologies segment.

On August 1, 2011, Carlisle acquired 100% of the equity of PDT Phoenix GmbH (“PDT”) for €77.0

million, or $111.0 million. PDT is a leading manufacturer of EPDM-based (rubber) roofing membranes

and industrial components serving European markets. The acquisition of PDT provides a platform to

serve the European market for single-ply roofing systems, and expands the company’s growth

internationally. PDT operates within the Construction Materials segment. The European market shows

favorable trends towards single-ply roofing applications and Carlisle can provide additional product

development and other growth resources to PDT.

Valuation models

Capital Asset Pricing Model:

Capital Asset Pricing Model Rationale

This model accounts for the time value of money and the additional risk (premium) an investor takes on when

they purchase securities. It takes into account the markets risk free rate, the anticipated return of the market,

the volatility of the company chosen. Carlisle’s beta, the measurement of how volatile it is in comparison to

the market, is 1.30. S&P 500 YTD return, 14.00%, was used for the market return. For the market’s risk free

rate, 10-year Treasury bill yield was used, which floats around 1.70%. Using these measurements, the

required rate of return for Carlisle Companies Inc. is 17.69%.

Holt's Model:

Holt’s Model Rationale

The Holt’s model, also referred to as the Growth Duration model, is great to use because of its comparative

value. The Holt’s model compares Carlisle’s future growth to the future growth of its industry and that of a

key competitor. It derives an appropriate P/E from this comparison and then uses the multiple and projected

earnings to derive the value of a common share. This model is appropriate to evaluate Carlisle’s fair value

because it derives the price from its growth prospects and appropriate valuation relative to prices the market

is willing to value similar companies.

Sensitivity analysis was also performed on this model. Carlisle was compared to the Industrial Conglomerate

industry and 3M (MMM, N); each comparison was then performed with three different scenarios:

pessimistic, anticipated, and optimistic. It allows you to calculate fair values for different growth rate

scenarios against specific competitors or competition as a whole in the form of a sector or industry.

A pessimistic growth rate of 4% is derived from sustainable growth model. Carlisle’s current return on

equity of 17.05% is multiplied by the percentage of retained earnings, which can be calculated by subtracting

a retention rate from 1. Carlisle’s current retention rate is 76.35%, which gives 23.65% for the percentage of

retained earnings. When the current return on equity and the percentage of retained earnings are multiplied, it

gives a sustainable growth rate of 4.0%. The 4.0% pessimistic rate is below estimates and seeing the



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company has constantly grow at a faster rate the past few years, Carlisle is definitely expected to exceed the

4.0% growth rate.

An anticipated growth rate of 15 % is generated from implied growth rate model. For implied growth rate,

current price of the Carlisle shares were divided by current earnings per share and then, divided by the PEG

ratio. Carlisle’s current price, $51.10, was divided by the current earnings per share of 4.33, then again

divided by the current PEG ratio of 0.8. This gave the implied growth rate of 15%, which is the anticipated

growth rate for Carlisle Companies Inc.

An optimistic growth rate of 50% is based off the average of the earnings per share annual growth rate and

the earnings annual growth rate. Its annual earnings per share is expected to grow 48%, and its annual

earnings is expected to grow 52% in the year of 2012. Those estimates are generated from the company’s

quarterly earnings report and the consensus from Thomson Baseline, Bloomberg, and Morningstar. With its

6% price increase in Construction Materials segment, a fast growing Interconnect Technologies segment, and

the management’s constant effort to expand its market share outside the United States, 50% growth rate is

definitely realistic.

With even weighs given to each scenario, a fair value of Carlisle Companies Inc. (CSL) is $70.56.

Malkiel’s Model:

Malkiel’s Model Rationale

Malkiel’s Model was used to take into account fair P/E, allowing for the use of one growth rate. This was a

desirable model since Carlisle’s growth should be strong, and probably will not experience much variation in

the future. It is also an advantageous model because Carlisle is undervalued compared to its historical

valuation and its peer, 3M. Carlisle has consistently given out a dividend each quarter since the company

went public. The Malkiel’s Model values the company based off of its expected dividend growth rate and the

future value of dividends. By utilizing the required rate of return (17.69%), the P/E of stocks standard to

Carlisle’s industry (15.50), and taking historical dividend yield into effect, a super growth rate is 16.57% and

its expected number of periods is for five years. The current EPS ($4.33) and Carlisle’s current annual

dividend per share ($0.80), a fair value of Carlisle’s stock can be derived. The fair value for Carlisle’s stock

based off of these estimates is equal to $67.87 a share. The current price per share of stock is undervalued by

32.46%.

Holt’s Fair Value: $70.56

Malkiel’s Model: $67.87

Average Fair Value: $69.22

Undervalued by: 35.46%

Risk to the Target Price

Risks to the target price include changes in commodity prices for raw materials, foreign currency exchange

rates and interest rates. Carlisle enters into financial instruments or commodity futures contracts from time to

time to manage these risks. However, Carlisle currently does not hold any financial instruments that are

sensitive to changes in commodity prices.

Industry Analysis

General Industry Overview

Carlisle is a diversified industrial conglomerate. However, 47% of its total revenue comes from Construction

Materials segment and Interconnect Technologies has grown significantly the past year and shows promising

prospects. The fundamental outlook for both construction and aerospace industries are positive.

After several years of cuts, U.S. non-residential construction forecasts are delivering positive surprises. The

American Institute of Architects mid-year forecast rose substantially on industrial demand as overseas

production returns to the United States, rebounding housing market and signs of improvement in the

commercial segment are a positive for equipment sales, which correlates to Carlisle Construction Materials’

revenue. Non-residential construction spending rose 7.3% year to date from last year and heavy engineering



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construction spending was 9.5% higher on a year to date from last year. The positive outlook in construction

industry promises future growth of Carlisle Construction Materials segment.

Carlisle’s Interconnect Technologies segment’s performance is correlated to aerospace industry performance.

Boeing has recently reported its 3Q earnings that beat estimates. Boeing’s revenue should reach $80.5 billion

to $82 billion this year, compared to $68.7 billion in 2011.The commercial aircraft business delivered 22

more jets YoY, due in large part to 787 deliveries, and ramping up output of 737 and 777 jets. This is a great

news for Carlisle Interconnect Technologies because every plane produced is a million dollar opportunity for

the company.

Competitive Advantage

Carlisle Companies Inc. clearly has a competitive advantage over the other players in the industry. Though

the company is mid-cap in terms of market capitalization, it has outperformed its competitors in a myriad of

aspects. To illustrate this, other industrial conglomerates such as 3M Company (MMM) and General Electric

(GE) were compared to Carlisle Companies Inc.

Profitability: Carlisle’s profitability is above industrial average. Carlisle has had a sales growth of 16.72%

vs 7.65% industry average. The company boasts its EBITDA growth of 51.16% vs 5.54% industry

average. Its net income growth is 50.03% vs 33.53% industry average. The company’s EBITDA growth

is almost ten times higher of its industry average. This shows that Carlisle’s business model of

maximizing profits by minimizing costs is far superior to others in its industry.

Equity Evaluation: Even though Carlisle’s market capitalization is much smaller than its industry peers, it

has a higher P/E ratio of 13.14 vs 11.04 industry average, and has higher dividend yield of 1.46% vs

0.83 industry average.

Stock Performance: Carlisle’s continuous growth and profitability has been rewarded by the stock market.

Over the past 52 weeks Carlisle’s stock has appreciated by 26.60% while the S&P 500 has only yielded

9.86%. In spite of uncertain market conditions, including the major companies’ weak earnings reports in

3Q12 and the recent depression of the markets from the European crisis, Carlisle has flourished yielding

35.70% over the past five years. In this same period, S&P 500 is down 8.02% and the industry peer with

the next closest return to Carlisle is 3M Company gaining 2.20% less than a tenth that of Carlisle.

Another industry peer, General Electric is down 47.71% over the past five years. This is an astonishing

feat for such a small company as Carlisle and there is even further potential growth for the stock.

Financial Analysis

Carlisle Companies Inc. has experienced impressive growth over the past five years, especially coming out of

the recession. The company has increased their revenue, net income, gross profit, free cash flow and stock

price. An optimistic outlook for the construction and aerospace industry looks promising for Carlisle’s future

outlook as well. Carlisle serves a broad range of niche market including commercial roofing, energy,

agriculture, lawn and garden, mining, construction equipment, aerospace, electronics, dining, food delivery,

and health care; while seeking to maintain strong margins on the variety products they offer. Their vertical

growth pattern will continue to lead Carlisle Companies Inc. to new heights.

Key Stats 2010 2011 2012

EPS 2.33 2.93 4.33

Net Profit Margin 5.2% 5.6% 6.8%

ROE 10.2% 12.8% 15.6%



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Net Sales

Carlisle Companies Inc.’s net sales increased 4.6% YoY to $910.2 million. Its organic sales growth of 1.3%

in 3Q12 reflected increased selling price in the Construction Materials and FoodService Products segments,

and higher sales volume in the Interconnect Technologies segment. Acquisitions in the Interconnect

Technologies and Construction Materials segment contributed $33.7 million to net sales in 3Q12.

Carlisle’s long-term goal is to achieve 30% of total net sales from outside the United States from current

19%. Total sales to customers located outside the United States increased from $178.7 million, or 20.5% of

net sales in 3Q2011 to $190.8 million, or 21.0% of net sales in 3Q12, reflecting $23.1 million in additional

sales from the acquisitions of Hertalan, Tri-Star, and PDT, and higher global demand in the Interconnect

Technologies segment.

Gross Margin

Carlisle’s gross profit increased 20.5% YoY from $187.5 million to $225.9 million. Its gross margin

improved 330 basis point QoQ, driven by increased selling prices, lower raw material costs, production

efficiencies from the Carlisle Operating System and non-recurrence of 2011 plant startup inefficiencies in the

Transportation Products segment.

Segment Results

Carlisle Construction Materials (CCM): Net sales in the third quarter of 2012 increased 3.3% to $456.7

million, reflecting organic growth of 1.3% and acquisition growth of 2.4%. The acquisitions of PDT and

Hertalan added $10.5 million to net sales. Organic growth of 1.3% reflected higher selling prices. Overall

EBIT margin at CCM rose to 17.4% from selling price realization.

Carlisle Transportation Products (CTP): Net sales in the third quarter of 2012 increased slightly to $158.2

million. Sales in the high speed trailer and power sports markets grew by 18% and 9% respectively. Sales in

the outdoor power equipment market declined by 22%, reflecting the impact of the drought in parts of the

U.S. EBIT margin improved significantly from (6.4%) in the prior year period to 4.1% in 3Q12 due to the

non-recurrence of 2011 plant start-up inefficiencies, lower raw material costs and other operating expense

savings.

Carlisle Brake & Friction (CBF): Net sales in the third quarter of 2012 decreased 12% to $117.6 million,

comprised of 10.2% organic sales reduction and 2.2% reduction from foreign exchange. Sales for CBF’s off-

highway braking applications to the construction market declined by 20%, reflecting slowing worldwide

demand. However, there were increased sales in the agriculture and mining markets of 10% and 4%,

respectively.

Carlisle Interconnect Technologies (CIT): Net sales in the third quarter of 2012 grew 52% to $115.0

million on organic sales growth of 21% and acquisition growth of 31%. CIT continued to experience healthy

demand in the commercial aerospace market, with increased sales in this market up 25%. The acquisition of

Tri-Star Electronics contributed $23.2 million to net sales and $3.8 million to EBIT in 3Q12.

Carlisle FoodService Products (CFSP): Net sales in the third quarter of 2012 increased by 2.1% to $62.7

million reflecting higher selling prices. CFS incurred charges of $6.9 million during the third quarter of 2012

for restructuring actions related to certain manufacturing and distribution operations and its exit from the

flameless chafer product line.

Investment Risks

Commodity Price Increases

Raw Materials accounted for approximately 72% of Carlisle’s cost of goods sold in 2011. Carlisle utilizes

petroleum-based products, steel, natural rubber, synthetic rubber and other commodities in its manufacturing

processes. Significant increases in the price of raw materials may not be recovered through selling price

increases and could adversely affect the company’s business, financial condition, results of operations and

cash flows. Carlisle also relies on global sources of raw materials, which could be adversely impacted by

unfavorable shipping or trade arrangements, and global economic conditions.

Cyclical Industrial Business Nature

Several of the market segments in which Carlisle sells its products are, to varying degrees, cyclical, and may

experience periodic downturns in demand. For instance, the Interconnect Technologies segment is susceptible

to downturns in the commercial airline industry and the Construction Materials segment is vulnerable to



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downturns in the commercial construction industry. Furthermore, both the Interconnect Technologies

segment and the Brake & Friction segment may be negatively impacted by reductions in military spending.

Current uncertainty regarding global economic conditions may have an adverse effect on the business, results

of operations and financial condition of the company and its customers, distributors and suppliers. Among the

economic factors which may affect performance are: manufacturing activity, commercial and residential

construction, difficulties entering new markets, and general economic conditions such as inflation, deflation,

interest rates and credit availability. These effects may negatively impact the level of purchases, capital

expenditures and creditworthiness of the company’s customers, distributors and suppliers, and therefore, the

company’s results of operations, margins and orders. Carlisle cannot predict if, when or how much

worldwide economic condition will improve. These conditions are highly unpredictable and beyond the

company’s control.

Acquisitions Affecting the Growth

Carlisle has a long standing acquisition program and expects to continue acquiring businesses. Typically, the

company considers acquiring bolt-ons. Acquisitions of this type involve numerous risks, which may include

potential difficulties in integrating the business into existing operations; a failure to realize expected growth,

synergies and efficiencies; increasing dependency on the markets served by certain businesses; increased debt

to finance the acquisitions or the inability to obtain adequate financing on reasonable terms. If the company is

unable to successfully integrate the acquired business or realize growth, synergies and efficiencies that were

expected when determining a purchase price, goodwill and other intangible assets acquired may be

considered impaired, resulting in an adverse impact on the company’s results of operations. Carlisle also

considers the acquisition of businesses which can operate independently of existing operations, which has an

increased possibility of diverting management’s attention from its core operations.

Large Concentration in the Construction

In FY2011, approximately 47% of Carlisle’s total revenue came from the Construction Materials segment.

Construction spending is affected by economic conditions, changes in interest rates, demographic and

population shifts, and changes in construction spending by federal, state, and local governments. A decline in

the commercial construction market, as well as certain other operations of the company, could adversely

affect the company’s business and financial conditions.

Exchange Rates

Carlisle has increased its presence in global markets. Approximately 19% of the company’s total revenue was

generated outside the United States in 2011 and the number is expected to grow as the company continues to

expand its international sales efforts. The strengthening or weakening of the U.S. dollar could result in

unfavorable translation effects as the results of transactions in foreign countries are translated into U.S.

dollars. In addition, sales and purchases in currencies other than the U.S. dollar expose the company to

fluctuations in foreign currencies relative to the U.S. dollar. Increased strength of the U.S. dollar will

decrease the company’s reported revenues or margins in respect of sales conducted in foreign currencies to

the extent the company is unable or determines not to increase local currency prices. Likewise, decreased

strength of the U.S. dollar could have a material adverse effect on the cost of materials and products

purchased overseas.

Recommendation

Carlisle Companies Inc. has all of the characteristics that make an investment attractive; it has an outstanding

business model, profitable operations, strong financials and stable growth potential. The management team

has adapted Carlisle Operating System to increase efficiencies and convenience. They continue to grow the

company internally by acquiring bolt-on companies and having a stable market position in niche markets.

Their continued growth in acquiring new companies and making those companies profitable is just another

positive sign for the long-term success of the company. Carlisle has excelled under uncertain market

conditions. The ability to adapt, to assess current situations and take the initiative, whether it be what is

happening in the macro environment or regarding the wants and needs of its customers, is a strong suit for the

company leaving it poised for a bright future. My valuations assign a fair value to CSL stock of $69.22,

currently undervaluing it by 35.46%. Therefore, I recommend buying 1,200 shares of Carlisle Companies

Inc.



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Table of Contents

Appendix 1: Income Statement ......................................................................................................................... 12

Appendix 2: Balance Sheet ......................................................................................................................... 13

Appendix 3: Statement of Cash Flows ....................................................................................................................................... 15

Appendix 4: Income Statement .................................................................................................................................................. 16

Appendix 5: CAPM MODEL & GROWTH RATES ................................................................................................................ 17

Appendix 6: HOLT’S MODEL ................................................................................................................................................. 17

Appendix 7: Malkiel’s Model .................................................................................................................................................... 18



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Appendix 1: Income Statement Annual Data

(In Thousands) Source: Company Documents, Student Estimates

All numbers in thousands

Period Ending Dec 30, 2011 Dec 30, 2010 Dec 30, 2009

Total Revenue 3,224,500 2,527,700 2,258,100

Cost of Revenue 2,547,400 1,999,000 1,767,800

Gross Profit 677,100 528,700 490,300

Operating Expenses

Research Development 28,700 23,200 16,400

Selling General and Administrative 373,300 309,400 262,000

Non Recurring - - -

Others - - -

Total Operating Expenses - - -

Operating Income or Loss 275,100 196,100 211,900

Income from Continuing Operations

Total Other Income/Expenses Net - - -

Earnings Before Interest And Taxes 253,900 187,800 202,900

Interest Expense - - -

Income Before Tax 253,900 187,800 202,900

Income Tax Expense 72,000 57,200 47,600

Minority Interest - - -

Net Income From Continuing Ops 181,900 130,600 155,300

Non-recurring Events

Discontinued Operations - - -

Extraordinary Items (1,600) 15,000 (10,700)

Effect Of Accounting Changes - - -

Other Items - - -

Net Income 180,300 145,600 144,600

Preferred Stock And Other Adjustments - - -

Net Income Applicable To Common Shares 180,300 145,600 144,600

Currency in USD.



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Appendix 2: Balance Sheet Annual Data

(In Thousands)

Source: Company Documents, Student Estimate



Assets

Current Assets

Cash And Cash Equivalents 74,700 89,400 96,300

Short Term Investments - - -

Net Receivables 537,700 436,700 324,900

Inventory 539,000 430,500 338,300

Other Current Assets 62,700 60,300 40,300

Total Current Assets 1,214,100 1,016,900 799,800

Long Term Investments - - -

Property Plant and Equipment 580,400 535,500 484,600

Goodwill 845,200 667,100 462,200

Intangible Assets 479,200 297,900 162,900

Accumulated Amortization - - -

Other Assets 19,000 12,600 4,600

Deferred Long Term Asset Charges - - -

Total Assets 3,137,900 2,529,500 1,914,100

Liabilities

Current Liabilities

Accounts Payable 439,100 370,300 276,200

Short/Current Long Term Debt 158,100 69,000 -

Other Current Liabilities 16,300 17,100 24,900

Total Current Liabilities 613,500 456,400 301,100

Long Term Debt 604,300 405,100 156,100

Other Liabilities 290,300 204,700 125,100

Deferred Long Term Liability Charges 129,700 122,600 113,200

Minority Interest - - -

Negative Goodwill - - -

Total Liabilities 1,637,800 1,188,800 695,500

Stockholders' Equity

Misc Stocks Options Warrants - - -

Redeemable Preferred Stock - - -

Preferred Stock - - -

Common Stock 78,700 78,700 78,700

Retained Earnings 1,566,100 1,429,300 1,324,300

Treasury Stock (219,900) (221,600) (223,600)

Capital Surplus 120,200 92,400 73,900



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Other Stockholder Equity (45,000) (38,100) (34,700)

Total Stockholder Equity 1,500,100 1,340,700 1,218,600

Net Tangible Assets 175,700 375,700 593,500

Currency in USD.



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Appendix 3: Statement of Cash Flows Annual Data




Net Income 180,300 145,600 144,600

Operating Activities, Cash Flows Provided By or Used In

Depreciation 88,000 71,900 67,500

Adjustments To Net Income 14,000 400 17,000

Changes In Accounts Receivables (64,700) (69,800) 79,900

Changes In Liabilities 48,900 16,200 (47,800)

Changes In Inventories (75,800) (56,300) 157,300

Changes In Other Operating Activities 500 (600) (1,300)

Total Cash Flow From Operating Activities 191,200 107,400 417,200

Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures (79,600) (64,600) (48,200)

Investments 5,300 - -

Other Cash flows from Investing Activities (389,200) (274,700) (41,300)

Total Cash Flows From Investing Activities (463,500) (339,300) (89,500)

Financing Activities, Cash Flows Provided By or Used In

Dividends Paid (43,500) (40,600) (38,600)

Sale Purchase of Stock 10,600 6,100 (300)

Net Borrowings 287,900 258,900 (235,400)

Other Cash Flows from Financing Activities - - -

Total Cash Flows From Financing Activities 256,400 223,800 (274,200)

Effect Of Exchange Rate Changes 1,200 1,200 100

Change In Cash and Cash Equivalents (14,700) (6,900) 53,600

Currency in USD.



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Appendix 4: Income Statement Quarterly Data



Period Ending Sept 30, 2012 Jun 30, 2012 Mar 30, 2012 Dec 30, 2011

Total Revenue 909,900 984,600 899,300 1,725,300

Cost of Revenue 683,900 729,200 678,100 1,077,400

Gross Profit 226,600 255,400 211,200 789,600

Operating Expenses

Research Development 8,100 8,500 7,800 7,300

Selling General and Administrative 107,300 106,600 107,200 98,800

Non Recurring - - - -

Others - - - -

Total Operating Expenses - - - -

Operating Income or Loss 110,600 140,300 96,200 52,700

Income from Continuing Operations

Total Other Income/Expenses Net - - - -

Earnings Before Interest And Taxes 110,600 140,300 96,200 31,500

Interest Expense 6,200 6,500 6,500 (15,500)

Income Before Tax 104,400 133,800 89,700 47,000

Income Tax Expense 34,600 44,400 29,700 7,400

Minority Interest - - - -

Net Income From Continuing Ops 69,800 89,400 60,000 39,600

Non-recurring Events

Discontinued Operations (200) 3,400 - (1,000)

Extraordinary Items - - - -

Effect Of Accounting Changes - - - -

Other Items - - - -

Net Income 69,600 92,800 60,000 38,600

Preferred Stock And Other Adjustments - - - -

Net Income Applicable To Common Shares 69,600 92,800 60,000 38,600

Currency in USD.



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Appendix 5: CAPM MODEL & GROWTH RATES Source: Company Documents, Student Estimates

Growth Rates:

To find a growth rate for CSL, I used several estimates.

Optimistic: 50%

Moderate: 15%

Pessimistic 4%

Required Rate of Return:

To find my required rate of return I used the Capital Asset Pricing Model. For risk free rate of return I used a 10-year Treasury Bill yield.

CAPM

BETA CSL 1.30

RF-10 year T-Bill 1.70%

RM 14.00%

R(k) 17.69%

R = RRF + BCSL (RM-RRF)

R = .017 + 1.30(.14 - .017)

R (k) = 17.69%

Appendix 6: HOLT’S MODEL Source: Company Documents, Student Estimates

Average of both: $70.56

Industry: Industrial Conglomerate Competitor: 3M Co.(MMM, N)

Pessimistic Growth = 4%

Fair PE = (0.9212)(13.80) = 12.71 2013 Est. EPS = $4.60

Fair Value = (12.71)(4.60) = $58.47

Pessimistic Growth = 4%

Fair PE = (0.955)(13.90) = 13.27 2013 Est. EPS = $4.60

Fair Value = (13.27)(4.60) = $61.04

Moderate Growth = 15%

Fair PE = (1.02)(13.80) = 14.07 2013 Est. EPS = $4.60

Fair Value = (14.07)(4.60) = $64.72

Moderate Growth = 15%

Fair PE = (1.055)(13.90) =14.66

2013 Est. EPS = $4.60

Fair Value = (14.66)(4.60) = $67.44

Optimistic Growth = 50%

Fair PE = (1.323)(13.80) = 18.26

2013 Est. EPS = $4.60

Fair Value = (18.26)(4.60) = $84.00

Optimistic Growth = 50%

Fair PE = (1.371)(13.90) = 19.06

2013 Est. EPS = $4.60 Fair Value = (19.06)(4.60) = $87.68

Average Fair Value: $69.06 Average Fair Value: $72.06



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Holt’s Model:

Growth Rates:

Pessimistic = Sustainable Growth = ROE (1 – Retention Rate)

.1705(1 - .7635) = 4.00%

Pessimistic = 4.00%

Anticipated = Implied Growth

PEG Ratio = (Current Price) / (Current EPS) / (Implied Growth Rate)

.8 = 51.10 / 4.33 / x

Anticipated Growth Rate = 15%

Optimistic = 50% (Avg. Bloomberg & Baseline)

Industry Data

Industrial Conglomerate

Normalized P/E = 13.8 (Baseline)

EPS Growth Rate = 12% (Baseline)

Competitor Data

3M, Inc.

Normalized P/E = 13.9 (Baseline)

EPS Growth Rate = 8% (Estimate from Baseline)

Carlisle Data

Estimated 2013 EPS = ((2012 EPS)(Anticipated Growth Rate of EPS) + (2012 EPS)

2013 Est. EPS = (($4.33)(6.00%)) + 4.33 = $4.60

Appendix 7: Malkiel’s Model Source: Company Documents, Student Estimates

Where:

EPS Current Earnings Per Share 4.33

k Required Rate of Return 17.69%

g (Super) Growth of next n years 16.57%

Ms P/E of a standard stock 15.5

DPS Current Dividend Per Share $0.80

n # of years that super-growth rates exist 5

P* Anticipated Fair Value $67.87

Average fair price of both models is $69.22

The stock is currently undervalued by 35.46%



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Sources

1) CSL-Form 10Q

2) CSL-Form 10K

3) http://www.carlisle.com/

4) Thomson Baseline

5) Bloomberg

6) Reuters.com

7) Finance.yahoo.com

8) Morningstar

9) Google.com/finance

10) Forbes.com

11) Quotemedia.com

12) Conference Call with Glenn Wortman, security analyst from Sidoti & Co.

13) Conference Call with Ivan Marcuse, security analyst from KeyBanc Captial Markets

14) Earnings Call Transcript, seekingalpha.com

Disclosures:

Ownership and material conflicts of interest:

The authors or a member of their households of this report do not hold a financial interest in the securities of this company. The authors or a member of their households, of this report do not know of the existence of any conflicts of interest that might bias the content or publication of this report.

Receipt of compensation:

Compensation of the authors of this report is not based on investment banking revenue.

Position as an officer or director:

The authors or a member of their households do not serve as an officer, director or advisory board member of the subject company.

Market making:

The authors do not act as a market maker in the subject company’s securities.

Ratings guide:

Banks rate companies as a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater over

the next twelve month period, and recommends that investors take a position above the security’s weight in the S&P 500, or any other relevant index. A

SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over the next twelve months.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the authors to be reliable, but

the authors do not make any representation or warranty, express or implied, as to its accuracy or completeness.

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