DOW JONES 90-DAY NEWS/RETRIEVAL Int'l News & Research Services
Sequence Number : 28 Story Date : 97/11/08
2 08:09 B Sizing Up Small Caps -2-: Values Hidden In Washed-Out Techs
From '92 through '96, revenues grew, on average, 25% a year, from $68 million
to $165 million, while earnings jumped from 11 cents a share to $1.11. Last
year Altron earned nearly 20% on equity, in spite of an unleveraged balance
sheet, and over 14% on assets. It posted pretax margins of nearly 18%, Black
notes, "which is unheard of in this business."
So, why is the stock 15 and change, down from over 25?
Easy-lower earnings. In the first nine months of '97, on flat sales, Altron
reported per-share net of 72 cents compared with 85 cents, hurt by a less
favorable product mix and heavy costs of a new plant in Wilmington.
The company will earn around $1 a share this year, Black reckons, down from
$1.11 in '96. Book value is over $7 a share. There's more cash than debt on the
balance sheet. And in '98, Altron will earn $1.25-$1.30, Black estimates,
perhaps $1.55 in '99. His 18-month target: $25.
Except by the most liberal of definitions (more liberal than ours), Milpitas,
California-based LSI Logic -- with a stock-market value of about $3 billion --
is not a small-cap. But it's getting there. Not long ago, LSI's market value
was nearly $9 billion. Shares have fallen from 62 1/2 to 22 and change.
Third-quarter earnings were weak and last month LSI forecast a lousy fourth
quarter.
LSI is the global leader in application-specific integrated circuits (ASICs)
that go into everything from Sun workstations to Sony's Playstations. "When the
hockey player skates over the blue line on a Playstation," explains Black, "an
LSI ASIC is in there." In fact, Sony contributes about 20% of LSI's sales, and
there's always the worry, Black readily admits, that the popular Playstations
go the way of Cabbage Patch Kids and Tickle Me Elmo dolls.
LSI's current troubles, however, are broad-based. Orders are slowing and
prices softening, even as the company bears the costs of a huge new fabrication
plant to come on stream mid-1998. For all of '97, LSI will report about $1.10 a
share, Black figures, roughly flat with last year's $1.12 but sharply down from
the $1.86 it earned in '95. He's looking for $1.35-$1.40 in '98.
But why he's buying LSI shares and believes the stock could be a "home run"
are prospects for '99: The new facility could boost sales to $3 billion from
about $1.2 billion currently, and LSI could earn $2.10 a share. "And that's
conservative," he insists, noting his model assumes operating margins of 22%,
far below the 26.5% at the last peak. "Once you start filling the fab, it's
like an airline -- you fill those incremental seats and it all goes to the
bottom line."
But what if LSI doesn't fill the plant? If you had a worldwide slump -- "if
the stock tanked" -- it'd sell around 14-15, Black reckons. Book is $11 and LSI
has more cash than debt.
On the upside, if in 12 to 18 months Wall Street sees earnings of $2-plus for
'99, LSI could, Black feels, double from here.
Like Altron and LSI, Integrated Silicon Solution is a wrecked tech with what
Black likes to call a "bullet-proof balance sheet." Book is over $7. Cash and
securities amount to $3 a share; long-term debt is 70 cents a share. And talk
about wrecked-shares that once sold at 73 1/4 now go for 10.
DOW JONES NEWS 11-08-97
08:09 AM
DOW JONES 90-DAY NEWS/RETRIEVAL Int'l News & Research Services
Sequence Number : 34 Story Date : 97/11/08
1 08:12 B Sizing Up Small Caps -3-: Black Reports The Big Bet Is '99
The Santa Clara, California-based firm designs high-performance SRAM, or
static random access memory. It owns no fabrication plants, but contracts with
low-cost producers to manufacture its products. When business was booming -- in
fiscal '95, ended September, for example -- ISSI reported $1.79 a share. In
sharp contrast, in the fiscal year just ended, with the world awash in SRAM, on
nearly 20% lower sales, ISSI lost 43 cents a share, compared with a
six-cent-a-share profit in fiscal '96.
But here's the good news: In the fiscal quarter just ended, sales surged 40%
and the company nearly broke even. After chatting with management, Black
reports that "prices that got as low as $2.80 per device last spring are back
up to $4-$4.50." For fiscal '98, Black estimates 27 cents -- which assumes
operating margins of only 3%.
The big bet is '99. If operating margins reached 18% -- still far shy of the
28% at the last peak -- on $190 million in sales, ISSI could earn $1.55 a
share, Black forecasts. Those earnings, he observes, are taxed at only about
20%, and so are worth a multiple of perhaps 15-16. Which works out to a price
of $23-$25.
DOW JONES NEWS 11-08-97
08:12 AM
DOW JONES 90-DAY NEWS/RETRIEVAL Int'l News & Research Services
Sequence Number : 34 Story Date : 97/11/08
1 08:12 B Sizing Up Small Caps -3-: Black Reports The Big Bet Is '99
The Santa Clara, California-based firm designs high-performance SRAM, or
static random access memory. It owns no fabrication plants, but contracts with
low-cost producers to manufacture its products. When business was booming -- in
fiscal '95, ended September, for example -- ISSI reported $1.79 a share. In
sharp contrast, in the fiscal year just ended, with the world awash in SRAM, on
nearly 20% lower sales, ISSI lost 43 cents a share, compared with a
six-cent-a-share profit in fiscal '96.
But here's the good news: In the fiscal quarter just ended, sales surged 40%
and the company nearly broke even. After chatting with management, Black
reports that "prices that got as low as $2.80 per device last spring are back
up to $4-$4.50." For fiscal '98, Black estimates 27 cents -- which assumes
operating margins of only 3%.
The big bet is '99. If operating margins reached 18% -- still far shy of the
28% at the last peak -- on $190 million in sales, ISSI could earn $1.55 a
share, Black forecasts. Those earnings, he observes, are taxed at only about
20%, and so are worth a multiple of perhaps 15-16. Which works out to a price
of $23-$25.
DOW JONES NEWS 11-08-97
08:12 AM |
