Signal Technology (now STCO)- a classic turnaround Message Board

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Technology Stocks : Signal Technology (now STCO)- a classic turnaround

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Mar 7 3:00 PM EST

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To: Paul Lee who started this subject	1/8/2003 10:08:14 AM
From: Paul Lee	of 191

8:02am EST 8-Jan-03 C.E. Unterberg, Towbin (James P. McIIree 212-389-8215) James McIlree, CFA 212-389-8215 jmcilree@unterberg.com This morning, STCO announced 2003 guidance right in line with our estimates of $96 million in revenue and untaxed EPS of $0.90. Management expects revenues between $94 and $98 million and untaxed EPS of $0.85-$0.93. The first quarter has less revenue than we expected, but usually is seasonally weak and we do not make much of the $2 million delta. Estimated EPS for the quarter are in line with our expectation. Signal Tech has completely exited the money-losing commercial wireless markets, is sitting on close to $1.50 per share in cash and trades at slightly less than 13x free cash flow. On an EV/sales basis, STCO is trading at 1.03x the estimated December- quarter sales run-rate. Although this is high relative to the company's historical ratio, profitability is also far above historical ranges and in our opinion, can support a higher valuation. Relative to a comparable universe (adjusted for profitability), the shares are trading at a significant discount. In our opinion, this indicates that the market is not crediting the company for its substantially improved sales and earning power. We anticipate a strong ongoing ramp from the defense business. Signal is sitting in the sweet spot of defense procurement and participates on most platforms related to missile guidance, radar and intelligence. We estimate that Signal has over $12 million in tax benefits not on the balance sheet--but that could be as early as the end of this quarter. This approximately $1.14 per share could be utilized over the next three years, keeping Signal without a cash-pay tax-obligation during that time. We reiterate our Buy/Buy and $13.50 price target.

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