This weeks Barrons.
Read-Rite, one of the world's largest independent suppliers of magnet recording heads for hard disc drives, boasts a financial track record that is perhaps best described as pretty awful. Even as huge losses decimated the balance sheet, shares that once sold within hailing distance of 50 by last summer had plunged to 2.
So it's quite a change to flash forward to December 31, 2000, the end of Read-Rite's fiscal first quarter, and hear management brag about a balance sheet that's in "great shape." And it is -- okay, so there are a slug more shares outstanding, thanks in large part to the conversion of high-coupon debt to equity -- but cash handily outweighs long-term debt 2-to-1.
What's more, Read-Rite's earnings surprised Wall Street -- happily, for a change. In first fiscal quarter, on sales of $190 million, the company earned $12.5 million, or 11 cents a share -- more than three times First Call's consensus of three cents. First-quarter sales jumped 30% from the final quarter of fiscal 2000 and gross margins expanded to 20.1% from 5.6%.
In a fiercely competitive industry, Read-Rite's technology is firmly in the forefront, Cohen insists. Indeed, in a mere five quarters, its market share has surged from 10% to 28%. "This is going to be a great company," he contends, "a real leader in the next cycle."
The stock has responded, but rather moderately, to the company's turn for the better. Shares closed Friday at 7 and change, giving the firm a stock market value of $900 million. For September 2001, Cohen thinks 48 cents a share is a good bet, and for 2002, perhaps as much as 75-80 cents.
...and Read-Rite.
And, yes, there's a kicker. Last September, Read-Rite teamed up with Tyco Ventures, a subsidiary of Tyco International, and Integral Capital Partners, an affiliate of the venture-capital firm Kleiner Perkins, to form a company called Scion Photonics. Majority-owned by Read-Rite, Scion will produce state-of-the-art optical communications components.
The fledgling company is expected to generate its first revenue this quarter, but has already caused a bit of buzz in high-tech circles, Cohen reports, and he thinks there's a shot this could work out swell: "It's certainly in a hot area."
But even without Scion, Cohen thinks Read-Rite shares should "easily double." |
