From Briefing this morning:
REALIABILITY INC (REAL) 13 7/8 +1 1/8 Manufacturer of burn-in and
test equipment for the semiconductor industry reports blow-out
quarterly results. Yet, investors are a little nervous about making a
play on this issue due to some recent bad news released by the
company. For the period, REAL earned $0.40 a share on revenues of
$14.43 million, year-over-year improvements of 122% and 34%,
respectively. For the second consecutive quarter, REAL has exceeded
estimates by a fairly wide margin, this time by 11 cents or 38% and
the last quarter by 10%. While the numbers were extremely impressive
in pure growth terms and compared to the Zacks estimate (though only
1 analyst surveyed), the bottom-line figure represented a 7%
sequential decline. Moreover, still sitting in the back of some
investor's heads is news released in mid-January that REAL planned
to close its Durham, NC, facility due to a need to reduce its output
of DRAM chips because of a prolonged slump in prices. While such a
restructuring is oft perceived as a positive on Wall Street (reduce
costs by cutting overhead, take a one-time charge), REAL shares took
a major hit (falling 4 3/8 to $10.75), after stating that it expects
the move to constrain growth in fiscal 1998. Hence, with such minimal
analyst coverage, investors feel as if they have almost no guidance
and, thus, appear unwilling to run the stock up until REAL's earnings
picture clears up a bit, or at least until the overall industry starts
to show signs that it is shaking off the Asia effect.
(emphasis added)
After the Q3 earnings, CFO Langley told me (in response to a direct
question) that prospects were not good for additional analyst coverage,
and sighted cost as one of several reasons. It has been my growing
opinion that the officers of the company may in fact owe it to the
shareholders to spend a little bit of company money to increase REAL's
exposure to the investment community. I read the emphasized part of
Briefing's comments as possibly a hint of a similar nature.
I was hoping that management would make a strong statement of their
belief in the value of REAL shares by announcing an additional
share buy-back. (Not of the magnitude of the buyback last Spring,
but something.) After all, at recent lows just under $10, wasn't
the P/E almost right back where it languished for so many years
before the buyback in March?
I have absolutely no information as to whether the company is
considering additional share purchases, but I would speculate
that they will wait until the NC plant situation is fully to
bed before seriously investigating the feasibility of another
stock purchase.
Paul |
