I spoke with Doug Greenlaw CFO just now.
His words were very comforting. He indicated that there have
been no surprises (to date anyway) and that they're still
quite comfortable with Q4 revenue and earnings expectations
presented last October (press release and conference call).
Further, he is very comfortable with the consensus analyst
estimates of EPS for CY98 <Range $1.16-1.50, Average $1.28>.
I got the feeling that Doug thinks these estimates are on
the conservative side; that ACT should not have any trouble
making these numbers.
Doug outlined their business as going after the higher value
and higher margin products which tend to have lower volume.
With these lower volumes, customers tend to be more local
and less concerned with squeezing the last dollar of cost
out of the product. He described 5 markets for their business:
Networks
High-end computing
Telecom (switching equipment, not phones)
Industrial
Medical
He expects no direct impact from the Asian turmoil. First,
they have no manufacturing operations there. Second, they
don't really compete against the high-volume manufacturers
who do have operations there. Third, they have no direct
customers in the region. If there is any Asian impact, it
would appear indirectly in that their customers' may have
reduced orders themselves and this may cause them to reduce
their orders to ACT. But I don't think they yet see any
indication that this will develop - its still theoretical.
I don't think we'll see a complete return to 12% margins
and 4% SG&A expense in Q4... they have increased capacity
that is still unfilled and, until they fill it, this will
weigh against margins. He indicated the business prospects
remain bright, i.e., the business is "out there", but he
admitted they need to turn the "prospects" into real orders.
My guess is that they'll report a modest profit for Q4,
consistent with street expectations, and this will give
a modest boost to the stock. I think its the Q1 report
that everyone will be waiting for. IBES lists the Long
Term Growth Rate for ACTM at 27.5% while the company
says 30%. If we estimate a forward PE of 28 and apply
this to a CY98 EPS estimate of $1.28, we arrive at a
target price of $36. If the next two earnings reports
come in as expected (and, for the moment, I see no
reason why they won't) I think this target is realistic.
quicken.excite.com
Rob |
