Jim and Abby Zimmerman of Lowell Capital Management presented their investment thesis on The Eastern Company (US: EML) at Wide-Moat Investing Summit 2021.

Thesis summary:

The Eastern Company is an undervalued manufacturer and marketer of engineered solutions to industrial markets in the U.S. and internationally.

The Engineered Solutions segment offers turnkey packaging solutions that are used in the assembly process of vehicles, aircraft, and durable goods. The Diversified Products segment designs and manufactures ductile and malleable iron castings. The company has a portfolio of scalable core businesses, including Big 3 Precision Products, Eberhard, and Velvac.

EML has a solid balance sheet with a strong focus on cash generation. EML recently had a market cap of $204 million and an enterprise value of $288 million. Absent a severe recession, Jim and Abby believe the strong cash flow generation can be sustained due to the company’s highly generative business model with limited capital expenditure needs.

EML is a fairly stable and sticky business with entrenched competitive positions in attractive markets. Management’s long term goal is to create a $100 million EBITDA company through organic growth in their three main business lines and through bolt-on acquisitions. Given the free cash flow generation of the company, Jim and Abby believe EML can achieve this with a healthy balance of leverage and ongoing cash from operations.

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About the instructor:

Jim Zimmerman is founder and portfolio manager of Lowell Capital Value Partners, LP, successor fund to Lowell Capital Fund, L.P. Jim managed Lowell Capital Fund L.P. from 2003 to 2015 employing a proprietary strategy laser-focused on smaller and/or misunderstood companies with large, sustainable free cash flow yields and “Ft. Knox” balance sheets. He generated a compound annual return significantly exceeding the HFRI Equity Hedge Index and the S&P 500 Total Return Index over this period, despite holding a significant net cash position (~30%) for most of this period.

Jim has over 25 years of investment banking and investment management experience in a variety of industries and has been involved with several billion dollars of investments.

Jim graduated with a BA with high honors in economics from Princeton University in 1980 and an MBA from Stanford Business School in 1984. He worked at Drexel Burnham Lambert, Inc., 1984 to 1990, serving in the Corporate Finance Department and multiple other investment banks from 1990 to 2003.

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