Stock of the month recommends PENC!
And now our December Stock Of The Month:
This is the first time Stock of the Month has ever
chosen to profile a company twice as a feature profile
of the month. December is typically a very slow month
for the market, especially for small-cap stocks.
Finding worthy companies to profile for this month is
often difficult to accomplish. After evaluating a
number of possible stocks for this month's feature, we
came to the conclusion that Pen Interconnect was far
and away the stock that poised the strongest short and
long term potential. We last featured PENC in March of
this year. Since then, the stock has been on a roller
coaster of a ride, currently settling in the $0.20
range. We believe this is the best time we've seen for
investors to look at this company for a number of
reasons. PENC has all the signs of being a highly
undervalued company. For starters, it is not one of
those mysterious companies that have only two or three
employees. PENC employs 279 employees and is located
out of Irvine in southern California. It has a book
value of only $0.60 per share (that's almost 3 times
the current price!). The industry average valuation is
approximately 2 times sales or twice the generated
revenue. Taking this industry average, PENC should be
valued at approximately $36 million (approximately $4
per share). Currently, however, PENC is valued at well
less than 1/4 sales, earning approximately $18 million
in revenue. The market cap for this $18 million revenue
earning company after the close of market this past
Friday was about $2 million. In our opinion there is no
explanation that explains why such a solid,
revenue-earning company could be so undervalued. So
with that said, we are pleased to bring you our Stock
of the Month profile for December: Pen Interconnect
(OTC BB: PENC).
=========================
Pen Interconnect
OTC BB: PENC
Current Price: $0.22
Year High: $2.50
Year Low: $0.203
Shares I/O: ~9M
Float: ~6M
=========================
Pen Interconnect (OTC BB: PENC) is a dynamic company
with a well-developed strategy for success. This
Irvine, CA-based company specializes in contract
manufacturing services for original equipment
manufacturers (OEMs), maintaining long-term
manufacturing partnerships with many high technology
electronic companies. PENC targets businesses in the
computer peripheral, telecommunication,
instrumentation, medical, avionics, and testing
equipment industries, providing these businesses with
total manufacturing solutions. Such solutions include
circuit design, board design, mechanical and product
design, prototype assembly, volume board assembly,
system services, and end-user distribution, in addition
to software duplication, packaging, and warehousing
solutions. As a result, PENC enables its clients to
transfer over almost all of their internal
manufacturing responsibilities.
PENC is fast becoming a well respected name in
outsource manufacturing due to its ability to provide
top of the line products, while also enabling its
customers to improve cost, manufacturing performance,
and time-to-volume production. No project is too big or
too small for this Company, and PENC is fast becoming
sought after as a contract manufacturer by OEM's
worldwide.
PENC Divisions
PENC currently consists of two main divisions: InCirT
and PowerStream. InCirT specializes in the assembly and
testing of circuit boards and their subsystems, and has
automated assembly capabilities for surface mount,
through hole, and mixed production technologies. InCirT
has an extensive investment in automated manufacturing
equipment to provide fast turnaround, high quality, and
cost effective board and system manufacturing support,
and has produced over 10 million PCB level assemblies
to the highest quality standards in the last decade.
The PowerStream division designs and manufactures
custom battery chargers and power supplies that are
cost effective, environmentally safe, and custom
designed to fit client specifications. PowerStream
focuses on research and development, layout, design,
prototyping, safety certification, and production to
create products that are safer, lighter, faster, and
more efficient than any other power products on the
market.
Both of these divisions have experienced tremendous
success and industry notability. Major customers
include Alaris Medical Systems of San Diego and L-3
Communications (formerly Lockheed Martin). L-3
Communications signed on for a very large quantity of
UPS/battery backup units for their wireless telephone
systems throughout third world countries. The letter of
intent signed by L-3 is for up to 250,000 units, valued
at over $12 million. This is just one of many promising
contracts that PowerStream holds. In addition there are
contracts with Bolder technologies for the development
of a special battery charging system, Tektronix for a
similar system, and Highway Safety for an on-going
order of traffic indicators. InCirT expanded its
business with Alaris through the Genesis contract,
worth over $5 million, in addition to several other new
products all with just as promising growth potentials.
Recent Developments
Things have been happening for PENC recently, all of
which have proved very beneficial for the company.
Aside from a few changes in management decisions and
focus, the Company is going strong experiencing a
significant increase in revenues. PENC's Q3 revenues
increased to $5,098,525, 78% higher than the previous
quarter's revenues of $2,828,000. They also showed a
significant increase over the $4,510,112 revenues for
Q3 of 1998. Pretax profits were $46,567 as compared to a
$2.5 million loss in the previous quarter and a
profit of $32,672 for Q3 of 1998. According to Donner
Corp. International, which issued a speculative buy
recommendation for the Company in September of this
year, "Fourth quarter revenues and profits look even
stronger than the third quarter as Pen Interconnect
gears up to meet the increasing market demand." This is
just one source that has recently begun coverage on
PENC. With strong, encouraging buy recommendations and
increases in advertising and exposure it's obvious that
PENC is gearing up for some significant moves forward
as the new millennium fast approaches.
And the Company is doing just that. PENC has undergone
somewhat of an internal SWOT evaluation, and has now
turned its attention to focus on its core competencies.
PowerStream and InCirT continue to receive a record
amount of new contracts, skyrocketing each division's
performance demands and causing PENC to grow and expand
like never before. Demand is so strong that the Company
announced a three-fold expansion of its InCirT
Technology Division due to an increase in backlog and
order rates. In September InCirT increased its
workforce by 25%, and divided its skilled workforce
into teams working multiple shifts to maximize
efficiency and productivity. The company also
reconfigured its manufacturing facility to house a
production capacity of up to $50 million per year. The
reorganization involves a more proficient assembly line
approach to accommodate production needs, including sub
system and system assembly and its traditional board
assembly projects. InCirT Technology has also
established a separate facility for its Genrad test and
system test equipment to improve the flow of work and
worker efficiency. In late October, InCirT increased
the capacity of its surface mount operation by 100
percent to better accommodate the increase in demand
and needs of its customers. According to Stephen Fryer,
CEO and President of PENC, "InCirT is now fully
automated in both surface mount and through-hole
technology with multiple line capabilities and has one
of the largest and completely automated through-hole
capabilities in Southern California." Substantial new
contracts are keeping InCirT busy and the revenue
potential is looking very optimistic for this
burgeoning division.
InCirT isn't the only one making significant progress.
PowerStream has also received a number of new contracts
from major companies like TDI Batteries, L-3
Communications, Flir Systems, TTC, Home Depot and JBRO
Batteries, increasing its backlog by over 50%. The
contracts include the release of 5,000 uninterruptible
power supply (UPS) units for a wireless communication
system, power supplies for a major aerospace company,
power adapters for an instrument company, and a high
volume battery charger product for a major test
equipment manufacturer. In early October, PowerStream
doubled the size of its manufacturing facility in Utah
to allow for expanded design prototyping and testing.
"So far, awarded contracts are in excess of one million
dollars and we expect to finalize several other
contracts within the next several weeks,' said Daniele
Reni, president of PowerStream Technology. "Because of
our ability to design custom power products, from
battery chargers to power supplies and DC/DC
converters, we have created a niche that has opened a
national and international market for our division."
More recently, PENC made shifts in management to better
accommodate the company's overall restructuring and
vision. In November, PENC announced the election of
Stephen Fryer as Chairman of the Board, and the naming
of Brian Bonar, president and chief executive officer
of Imaging Technologies Corp. San Diego, a worldwide
pioneer in the development of digital imaging
solutions, as a member of PENC's Board of Directors.
These changes emphasize the Company's focus on building
a management team comprised of members with immense
industry expertise and leadership know-how.
Consider the Future
PENC has had a rocky ride and has made significant
transitions to smooth the path to success. This company
has the ability to bound to the top of its industry,
and this is a good time for investors to consider the
potential success this company can bring. The stock
price is currently at a low, but we anticipate an
upside as investors realize this company's potential.
We are not alone in regarding PENC's stock as being
highly undervalued. Donner Corp. International states,
"We believe Pen Interconnects' stock is undervalued
considering the high market demand for its products and
services, the Company's stellar reputation for
consistently producing high quality, cost effective
products, and the low price of its stock." PENC is
constantly looking to establish strong
alliances/partnerships with key companies that would be
beneficial to PENC's corporate goals, and we believe
this strategy will pay off for PENC and its investors
in the short and long term.
Contact Information:
Steve Fyrer
President and CEO
(949) 798-5800 |
