I posted the Chase H&Q summary the other day and have since had time to type up the fuller report:
December Quarter Results:
GSI Lumonics reported significantly better than expected 4Q99 results with sales and earnings of $88.7 million and $0.12/sh versus our estimates of $81.2 million and $0.09/sh. This is the second complete quarter of integrated results inclusive of Lumonics and General Scanning since their merger in late March 1999. Because the transaction was accounted for as a purchase, comparisons with the year ago period are not helpful. December quarter results, however, reflect substantial improvement relative to the September quarter in which GSLI posted sales and EPS of $78 million and $0.06/sh. Notably, revenues increased $10.5 million, or 14%, sequentially, gross margin of 38.8% remained strong, versus 39.1% in the third quarter, and backlog increased to $83 million from $81 million on bookings of $90 million.
Demand for GSLI's high precision laser-based manufacturing systems, instrumentation and components increased in nearly all of its targeted vertical markets consisting of the semiconductor, electronics, medical, automotive, aerospace and consumer packaging. Sales to the semiconductor market increased sequentially to $12.5 million from $9.3 million, automotive increased to $4.9 million from $3.4 million, electronics increased to $26.1 million from $16.1million, medical/biotechnology increased to $17.9 million from $14.6 million, and parts and service grew to $11.8 million from $10.1 million. This was partially offset by sales weakness in the aerospace segment, which decreased to $1.3 million from $5.7 million, consumer packaging, which decreased to $2.3 million from $4.0 million, and components, which decreased to $10.3 million from $11.5 million.
We continue to believe that the cyclical improvement in the semiconductor industry has resulted in improved bookings, and will drive improved revenue in this category over the next 18 months. We believe that sales of GSLI's thermal printers, which are used in patient monitoring equipment as well as the greeting card industry, remained unchanged from $8.4 million (roughly 10% of total revenue) in the September quarter.
We believe demand is increasing due not only to cyclical upturns in the semiconductor and electronics segments, but is also benefitting from the improving economic health in European and Asian markets. Accounting for 36% of GSLI's revenue in the December quarter (Europe = 20%; Asia and Japan = 16%) the renewal of demand from these regions may provide GSLI with a significant boost. As followers of the old GSCN painfully remember, it was the Asian economic crisis (compounded by a sharp drop in demand from the semiconductor and electronics markets), that initiated the precipitous drop in GSCN's operating results and share price last Summer. Now that encouraging signs of renewed demand are emanating from Asia, Japan and Europe, we believe GSLI will enjoy a more geographically diverse base of customers.
Optical Component/Telecom Business Poised For Growth
On the conference call,management stated that it will create a separate business dedicated to providing optical components to the telecom industry. The Optical components/Telecom business, which previously provided optical components only internally, to the company's different business units, is now also providing a variety of optical components (between 8-15 products) to telecommunications component suppliers, such as Nortel, JDS Uniphase and Etek. We believe that revenues from this business, which represented only 1% of total revenues in 1999, will grow to approximately 3% of total revenues in 2000, or about $10 million. In our opinion, this business could very rapidly develop into a significant optical subcomponent supplier based on the company's optical design and manufacturing prowess and the strong demand in the optical components markets.
Estimates Increased
In light of GSLI's impressive December quarter results, which exceeded our estimates, and the obvious improvement in the Company's fundamentals, we are increasing our 2000 outlook to $335 million and $0.59/sh. We are maintaining our very conservative 2001 estimate of $366 million and $0.74/sh, reflecting top and bottom line growth of 10% and 27%, respectively.
Reiterating BUY Recommendation And Increasing Target Price to $28
We are reiterating our BUY recommendation and increasing our target price to $28 per share, equivalent to a $1 billion valuation or 37 times our FY01 EPS estimate, based on strong momentum in the company's core businesses, driven by strength in the semiconductor, electronics and automotive segments, as well as the company's newly created optical components business, which we believe is poised for explosive growth in the near term.
|
