The Undervalued Dog picks SEMI today:
Subj: An Ideal Takeover Candidate: SEMI
Date: 98-04-16 14:51:08 EDT
From: analystsgroup@goplay.com (analystsgroup)
Reply-to: analystsgroup@goplay.com (analystsgroup)
Undervalued Dog, Volume 3, No. 13, April 16, 1998
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All American Semiconductor, Inc. (Nasdaq: SEMI)
Recent Price: $1.625-1.75/share
Daily Average Volume: 61 K
97 EPS: $0.17/share
97 PE:10.3
Industry Average PE:39.56
Estimated 1998 EPS:$0.43/share
Trailing PE:4
Div/Shr: None
Yield: None
52-week Range: $0.84--2.50/share
Outstanding Shares: 29.9M
Floating Shares: 8.6 M*
Profit Margin: 5%
1997 revenues: $265.6 M
Estimated 1998 revenues: $318.7 M
SEMI is extremely bullish. Tendencies for prices to continue to
advancing are extreme at 95-100% with a short term (3-6 months) upside
potential of $ 5.00 and a long term (12-24 months) upside potential of
$10.00.
BUSINESS SUMMARY AND CORPORATION BACKGROUND: The Company markets both
semiconductors and passive products. Semiconductors, which are active
products, respond to or activate upon receipt of electronic current.
Active products include transistors, diodes, memory devices and other
integrated circuits. Passive components, on the other hand, are
designed to facilitate completion of electronic functions. Passive
products include capacitors, resistors, inductors and
electromechanical products such as cable, switches, connectors,
filters and sockets. Virtually all of the Company's customers purchase
both active and passive products.
While the Company offers many of the latest technology semiconductor
and passive products, its focus historically had been on mature
products that have a more predictable demand, more stable pricing and
more constant souring. The Company believes that the greater
predictability in the demand for these products and the fact that
component manufacturers are not likely to invest capital in order to
increase production of older technologies combine to reduce the risks
inherent in large volume purchases of mature products. By making
large volume purchases of semiconductor and passive products, the
Company decreases its per-unit cost, thus increasing its potential for
higher profit margins upon resale of these mature products. Although
the Company continues to position itself as a leader in the more
mature product lines, as part of its growth strategy, the Company has
expanded its focus to include offering newer technology products as
well as on selling high volumes of commodity products. These newer
technologies and commodity products are playing a greater role in the
overall sales mix of the Company and are expected to play an even
greater role in the overall sales mix to the extent the Company's
sales continue to grow. Most of the commodity products, and many of
the newer technology products, have lower profit margins than the more
mature semiconductor and passive product lines.
RECENT DEVELOPMENTS AND ANALYSIS: Net sales for 1997 reached a new
record of $265.6 million, a $27.8 million or 12% increase over 1996
sales of $237.8 million. Income from continuing operations also
reached a new company record in 1997 of $10.2 million, compared to a
loss of $(4.1) million for 1996. Net income increased significantly
to a record level of $3.3 million or $.17 per share for 1997, compared
to a net loss of $(9.9) million, or $(.50) per share for 1996.
Net sales for the fourth quarter of 1997 was $65.5 million, a 16%
increase over sales of $56.6 million for the same period of 1996.
Income from continuing operations was $3.0 million for the fourth
quarter of 1997 compared to $658,000 for the same period of 1996. Net
income reached a record quarterly level of $1.2 million or $.06 per
share for the quarter ended December 31, 1997, compared to a net loss
of $(2.2) million or $(.11) per share for the 1996 period. All
American is ranked as the nation's Th largest distributor of
semiconductors and the 15th largest electronic components distributor
overall. The Company now has offices in 30 strategic locations
throughout North America, including All American's ISO certified
distribution and programming center in Fremont, California.
On January 28, 1998, SEMI announced the all locations authorization
for semiconductor startup Clear Logic, Inc.. Clear Logic, based in
Santa Clara, California, is a fabless manufacturer of Application
Specific Integrated Circuits (ASICs). Clear Logic specializes in
converting Field Programmable Gate Array (FPGA) based designs into
lower cost ASIC implementations. The Clear Logic CL8000 product
family is designed for architectural compatibility with the FLEX(TM)
8000 family of products manufactured by Altera Corporation
[Nasdaq:ALTR]. The combination of Altera(TM) FPGA tools and Clear
Logic LASIC(TM) provides system designers with a fast, flexible lower
cost path to a multi-sourced ASIC. Clear Logic products are
compatible with industry standard pinouts and are sold into existing
FPGA production sockets as well as for new system designs. The Clear
Logic LASIC(TM) technology enables us to provide a hard-wired ASIC
from a customer's bit stream file with no NRE and no minimum order
quantity. The Clear Logic TestCell(TM) architecture and methodology
completely automates test vector generation, therefore, no customer
generated vectors are required. On Feb. 5, 1998, SEMI announced the
all-location authorization for SMART Modular Technologies, Inc..
SMART Modular Technologies, based in Fremont, California, is a world
leader in standard and customer specific FLASH and RAM based memory
module solutions. SMART features Samsung, Intel, Micron and AMD based
products. Additionally, SMART designs and manufactures Rockwell based
modem products as well as a full line of Embedded Computing solutions
utilizing the IDT ''R'' series RISC processor family.
Besides these two developments, the company is ready to introduce
several other lines that will significantly improve profit margin, as
well as revenues. In 1998, the company intends to grow revenues at a
rate of 20% and to improve profit margin from 4-5% last year to 7-10%
this year. It is estimated that the company will generate EPS $0.43/
share with $320 million revenues for 1998.
Technical analysis indicates that SEMIs shares temporarily peaked at
$2.50 last July after breaking away its round bottom, as its Relative
Strength generated a bearish overbought reading. Since then, its
trading is best described as quietly slipping, which is not
surprising because of overall condition of semiconductor industry.
Its Relative Strength remains oversold despite any real decline. Its
On Balance Volume implies its shares are under accumulation, adding to
its positive technical picture. There is solid technical support in
the $1.50 area.
Rumors regarding SEMI as a takeover target are heating up on the
Street. The consensus on the Street is that the fair value of SEMI is
about $7-8/share if the stock is still traded under $5.00, but if the
stock is traded more than $5.00, the sale price can be anybodys
guess. 25 Institutional investors are holding 5.6% SEMI outstanding
shares now, a sharp increase from 0.2% (3 institutional investors)
last year, because several analysts and newsletters have rated SEMI as
a strong buy. In addition, one institutional investor has taken a big
position on SEMI that caught our attention. This institutional
investor is famous in picking undervalued and turnaround stocks on the
Street. Last year, they made its name on the Street for picking AMES
(they picked it at $1-2 in 1996, and AMES is $22 now). Some analysts
called SEMI is last gem left on NASDAQ among stocks under $2.00 with
significant revenues and earnings. In fact, SEMI has had more than 6
profitable years except 1996 in the past seven years. The
fundamentals are sound. During research, we found another company
(NYSE: SEM) has same fundamentals as SEMI in terms of growth,
earnings, revenues, etc., but its price is traded at $12.50. Poor
efforts from the company in public and investor relationship and a big
operating loss in 1996 due to its expansion may have contributed to
the low price of SEMI and have generated some doubts on the Street.
But now more and more institutional investors have taken notice of the
latest developments from SEMI. In particular, heavy trading during
last several days has caught some firms attentions on the Street.
Since more and more institutional investors are going to take
positions on SEMI, we believe it is the best time to invest in this
stock for a nice up move.
Contact:
Howard Flanders, CFO
16115 Northwest 52nd Avenue
Miami, FL 33014
Phone: (305) 621-8282
Website: allamerican.com |
