Headline: (UPDATE) Cubic Reported In Line For New Defense, Public-Transit Deals
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NEW YORK -(Dow Jones)- Shares of Cubic Corp. jumped to a new 52-week
high Monday after Barron's reported that the maker of electronics
equipment may land new contracts in the defense and public transit
system markets.
Cubic, whose earnings patterns have been uneven because of the
unpredictability of contracts with its biggest customers, is on the
verge of nailing down major new pacts that should lead to more
sustainable profit growth starting with the fiscal year that begins next
month, Barron's said.
After a lengthy delay Monday, Cubic shares began trading on the
American Exchange during the afternoon, up $5.625, or 16%, at $40. That
easily broke the old 52-week high of $35, set Aug. 29.
The company has added some sizzle to its outlook with a new product
that has stirred excitement in the computer trade press. Going under the
name CVideo-Mail, it consists of an assembly of software and a circuit
board that can be hooked up to computer E-mail setups to provide voice
and pictures.
Expected to be in full commercial distribution by year-end,
CVideo-Mail will boast a video-compression technology that the company
contends will enable it to provide quality superior to that found in the
handful of similar products now on the market. Cubic is now in the final
stage of negotiations to sell the product initially through Qualcomm
Inc.'s distribution network for the industry-leading Eudora E-mail
software family. The company expects to price CVideo-Mail packages under
$200, and has set a sales goal of two million packages in two years.
Publicity about CVideo-Mail last month coincided with news that
Walter G. Fairbanks, head of the company's defense operations, was
buying Cubic shares unrelated to his stock options. The report helped
boost Cubic's price in heavier-than-usual trading.
In fiscal 1996, Cubic's net from continuing operations more than
doubled, to $11.1 million, or $1.23 a share, from $5.4 million, or 60
cents, in fiscal 1995. Revenues rose to $407.6 million from $370.1
million. Beginning in fiscal 1998 and beyond, earnings should register a
bigger, more sustainable gain, probably doubling again within two or
three years.
Cubic is by far the leader in fare-collection equipment, and Walter
J. Zable, the company's founder and chief executive officer, told
Barron's that a lot of new business ahead lies outside the U.S. Cubic
has a 37.5% interest in a consortium negotiating a 17-year contract for
automating fare collection on London's vast transit network. The
contract, which includes follow-up servicing, would yield $500 million
of revenues for Cubic.
Another big plus abroad is coming from a $28 million contract awarded
last October to install fare-collection equipment for a Shanghai rail
system. The project is expected to be the first of a number of contracts
in the city, and, for that matter, elsewhere in China.
In the U.S., the company continues to work with major systems,
particularly in New York City, Chicago and Washington. A big new feature
adding to Cubic's prospects is the adoption of "smart card" systems,
which are replacing tokens in most cities. A still newer feature on the
way is the "touchless" card, enabling a rider to board transit without
having to remove the card from wallet or purse.
Defense business is where Cubic got its start, turning out a variety
of electronic gear. The company got hit hard by the downsizing of the
U.S. military and by spending cutbacks in other countries, but it has
found a profitable niche in the production of air and ground combat
training systems.
One advanced system is known as MILES 2000, which stands for multiple
integrated laser engagement system. MILES 2000, which has been
successfully tested by the Army and the Marine Corps, uses lasers
instead of bullets, but simulates realistic combat conditions. Full
production should get under way by 1999. The system has a contract
potential of $500 million in the U.S. Cubic looks for another $500
million in contracts over time from countries outside the U.S.
Barron's is published by Dow Jones & Company, which also publishes
The Wall Street Journal and this and other news services. |
