GKM Report posted on Yahoo.
Optimal Robotics+*# (OPMR)?Profit Taking Provides Opp.; Upside Likely in 4Q and 2000?BUY
Scot Ciccarelli, CFA Deron Kennedy, CFA
January 19, 2000
Target: 52 S&P 500: 1455
Profit taking providing opportunity; upside to estimates in 4Q99 and 2000 likely. We believe many
investors resisted taking profits in OPMR shares for tax reasons at the end of 1999 due to the stock?s sharp
appreciation during the year. However, January 1 obviously brought in a new tax year and we believe the
stock has pulled back somewhat due to profit taking by retail investors. The stock?s relatively light trading
volume reinforces our opinion. The stock still trades heavily on announcements, and after a flurry of
announcements at the end of 1999, there has been a lull in news items ?hitting the tape.? However, it would
be wrong to assume that nothing is happening. In fact, we believe the company continues to make
significant progress on a number of fronts. In addition, we believe there is significant upside potential to our
4Q99 system installation estimate of 51 (275 for the year) and our 520 system forecast for 2000. We
continue to believe that Optimal is excellently positioned to capitalize on the trend towards automating the
retail checkout process and we continue to rate OPMR BUY with a 12-month price target of $52.
Substantial revenue and earnings visibility could increase further. By the end of 1999, Optimal had firm
purchase orders for 400 U-Scan systems from three major customers (200 from Kroger, 100 from A&P and
100 from Ahold), plus another 25-30 (in the form of smaller orders) from various retailers. In addition, we
believe several new customers have placed initial orders for U-Scan over the last few weeks, many of which
we believe could become significant U-Scan customers over time. Finally, we remind investors that Meijer
was Optimal?s second biggest customer in 1999 and we expect the company will remain a very good
customer in 2000 ? even though Optimal does not yet have a firm purchase order in hand.
Lawsuit is a non-issue in our opinion. International Automated Systems (IAUS) filed a lawsuit against
Optimal Robotics on July 2, 1999 claiming that Optimal is infringing upon an IAUS patent. The patent in
question relates to a weighing apparatus that is integrated into a self-service checkout system. Optimal was
first notified by IAUS regarding this infringement claim in 1995 and the company?s lawyers (after extensive
review) are highly confident that the U-Scan system in no way, shape or form violates IAUS's patent. In
addition, there are questions regarding whether IAUS's patent is valid to begin with. In fact, third party
lawyers for underwriters have also reviewed the claim and came to the same conclusion before the company
did its IPO and its secondary offering. Finally, Optimal also has patents on its self-checkout system and
weighing system and we believe that part of any patent approval process entails searching for existing prior
patents. Thus, given these reviews, the current SEC investigation of IAUS for false technology claims and
prior suits involving stock manipulation, we do not believe the lawsuit against Optimal has any merit. |
