Barrons writeup today:
What's to Like About TSI?
While stock markets around the world rudely unraveled on Thursday and the Dow Industrials plunged a stunning 357 points, a few brave stocks bucked the trend. Among them was TSI, which finished the brutal session up a giant 1/16, on volume of some 15,000 shares.
TSI -- we're glad you asked -- is a Minneapolis-based maker of precision instruments, many with ridiculously longwinded names, like the Ultraviolet Aerodynamic Particle Sizer spectrometer, a state-of-the-art gadget that detects airborne biological agents.
Besides its lavish investment in R&D, averaging 14% of revenues over the past five years, and its handsome profitability, what's remarkable about TSI is its sterling long-term record. The company has been profitable for 35 years. Revenues have risen consistently for 26 years. Since the company came public three decades ago, sales have compounded at an average annual rate of 17%, and earnings at a rate of 19%.
In Wall Street's eyes, however, such palpable virtues can't compensate for such awful vices as
a) the fact TSI is a small-cap with a market value of $85 million;
b) that earnings have flattened out temporarily, and
c) that the company has a modest Asian exposure, with about 10% of revenues coming from Korea, Japan and China.
Thus, in contrast to Thursday's stalwart showing, the stock's action over the past year or so has been strictly doggy; at 7 3/8 , it's off 40% from its high of 12 1/2.
We confess we've had a warm spot for this classy little firm ever since we first wrote it up back in November 1993 at the equivalent of $3-and-change. And we're impressed that one of the bigger buyers of the stock this spring and summer -- perhaps the biggest -- has been TSI itself.
Asia, to be sure, has been a drag, but scarcely a disaster. "Business has slowed down," concedes TSI's top financial man, Bob Gallagher, "but by no means has it disappeared." Indeed, in the first fiscal quarter, ended June, orders flowing out of the Far East were ahead of year-ago levels.
Profits last fiscal year and in the first fiscal quarter of this year also have been crimped by somewhat lower spending by governments, universities and laboratories on TSI's research instruments (about 25% of revenues), a temporary dearth of sales of meteorological instruments (about 10% of sales) and slower-than-expected revenues from a new line of noncontact processing instruments for the wire and cable industry.
But the biggest single dampener was simply that large orders for TSI's
respirator fit testers -- a "must-have" military item ever since the Gulf War -- fell from $12.5 million in fiscal 1997, ended March, to $8.4 million in fiscal 1998. They're expected to decline further to some $4.8 million this year. However, thanks to a five-year contract with the U.S. Army, sales of the product should stabilize beginning next fiscal year.
Still, the company's overall revenues of $81 million were higher last fiscal year and net, only four pennies a share lower, 58 cents versus 62 cents. More to the point, Gallagher predicts sales in the fiscal year ending next March will top fiscal 1998's. He's optimistic about landing one or more big orders for meteorological instruments. Fresh markets, moreover, promise to spark sales of the noncontact processing instruments.
And Gallagher is very upbeat about instruments that monitor indoor air quality and protect human health, about 40% of TSI's sales, and growing 15%-plus a year. Demand has been spurred in part by stricter OSHA regulations. Finally, he believes the instruments that detect biological agents could exert a stronger than expected impact.
The sole estimate for March '99 is 59 cents a share, only a penny higher than last year. But if a few things go right, earnings could run as high as 65 cents a share.
There isn't a speck of debt on TSI's balance sheet.
At 7 3/8 , the stock is going for 12.5 times this year's sole estimate, less than twice book and about one times sales. Rather modest valuations for a company that, over the past five years, has doubled sales, grown earnings at a 20%-plus clip, averaged 56% gross margins, 8% after-tax margins and nearly a 13% return on assets.
Full article available at:
interactive.wsj.com |
