ZORAN +5 9/16 +16.24% .. Monday's watch list highlight.. High Tech News
Watch List November 22
10> ZRAN - ZORAN CORP .ESE
Price= 34.3 VL/30= 69.3 %Rnge= 100.0 Sto9V= 79.8
W14dV= 62.5 %Hi4 = 97.8 1-Dy = 103.0 50MA = 119.0
10MA = 105.2
A buy above 35 will have completed an ascending triangle formation. 10 day moving average breakout, MACD breakout
Zoran to Raise $100 Mln in Follow-on Equity Offering
By Ella Jacoby
At the end of last week, Zoran Corporation filed for a draft prospectus prior to a $100 million follow-on offering on Wall Street. Zoran's issue will comprise 3,000,000 shares of common stock, of which 2,500,000 are being offered by the company and 500,000 are being offered by Elron, the company's majority shareholder (12.6%). Following the share issue, Elron will own a 6.5% stake in Zoran while general manager and founder Levi Grazberg wil hold 3.2%.
Given Zoran's $34.25 share price at the end of last week, Elron should bring in $17 million, while the company itself will raise $86 million. The company will also grant the underwriters an option to purchase up to 450,000 additional shares of common stock. Should the underwriters exercise their options, Zoran may take in an another $15 million.
Zoran intends to use the net proceeds from this offering for general corporate purposes, principally working capital and capital expenditures.
Zoran develops and markets ICs and IP cores for digital audio and video applications enabled by compression. Zoran's product lines and IP cores include DVD and SVCD decoders, system-on-a-chip digital still camera processors, JPEG codecs, video codecs and digital audio processors.
The company is considered a leader in its field, with a market share of 40%. DVD related sales accounted for 63% of total sales in the last quarter. Total revenues for Q3 were $16.1 million and net profits were $2 million. According to a forecast released by Oppenheimer Investments, Zoran will end 1999 with $60 million in revenues and almost $6 million in net profit. Next year, revenues are expected to reach $92 million and net profits $14 million.
Oppenheimer gave Zoran a "strong buy" recommendation following the release of third quarter results, with a target price of $34 per share. At that time the share price was $25; within one month it had managed to reach the goal set by Oppenheimer.
Published by Israel's Business Arena on November 21, 1999.
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Stock of the Day
Nov 22, 1999
Zoran: Riding the Consumer Electronics Wave
Senior Analyst: Chris Bulkey 11/19/99
Zoran (NASDAQ:ZRAN - news) is benefiting from all of the new stuff that it using digital technology.
Based on third quarter results, and a positive outlook for the digital video disk (DVD) and digital camera markets, Zoran should continue to see strong sales growth into 2000 and beyond.
After reporting sluggish sales growth from 1996 through 1998, revenue growth has begun to accelerate, and we believe that the best days are ahead of the company.
Zoran provides integrated circuits (ICs) for a number of digital products, including DVD players, filmless digital cameras, video conferencing systems and surround sound systems. The company's chips incorporate compression technology, a key enabling factor in leading to the widespread acceptance of digital technology.
Most digital electronics equipment processes huge amounts of data. For example, an hour-long video program in uncompressed digital form would require about 100 CD-ROMs, which is simply not cost effective.
Compression technologies eliminate the redundancies in video and audio data, and lower the overall amount of data that needs to be retained. As a result, compression techniques allow the same hour-long video program, which required 100 CD-ROMs, to be stored on a single CD.
Zoran's chips help makers of digital electronic products achieve this compression cost effectively.
Third quarter results confirm the widespread acceptance of digital technologies. Revenue increased 36% to $16.1 million versus $11.8 million in the prior year's period. Earnings came in at $0.17 per share, a 325% increase from $0.04 per share in the year ago period and $0.04 per share ahead of consensus estimates.
On a sequential basis, sales rose 18% from the second quarter, while net income increased 67%, showing that profitability is beginning to accelerate.
DVD unit shipments increased 41% from the second quarter, causing DVD product revenue to account for 63% of total product sales.
One worrisome sign: Gross margins fell to 52% from 57% in the third quarter of 1998. Don't despair. This was due to a higher of mix of product sales versus license sales as the company ramps up its business in the consumer sector.
In addition, Zoran sold its SoftDVD business, which will cause product sales to constitute more of the overall top-line, as software and license sales become less significant. As Zoran proved in the third quarter, gradual and consistent erosion in gross margin can be offset by strong top-line expansion.
The sale of the SoftDVD business also lowered research and development expenses during the quarter, helping improve the operating margin to 14% from 2.9% in the prior year.
The balance sheet remains strong and a recently announced secondary offering will improve Zoran's cash position, so that equipment and capacity can be added to help meet demand.
At an offering price of $34.63, proceeds to the company will be approximately $82 million and will lift overall cash to about $100 million, or more than $7 per share after accounting for a 23% increase in shares outstanding. Secondary offerings should always be viewed with a bit of skepticism, but in this case we believe that demand is very strong and the increased capacity will eventually offset the dilutive effects.
The announcement of the secondary did lead to a temporary pause in the more than 200% increase in Zoran shares since June, but this slight pullback gives investors a good opportunity to buy shares as we head into the holiday selling season.
The stock closed at $34.25 on Friday, slightly below a 52-week high of $36.
In the fourth quarter and into 2000, sales will continue to benefit from the DVD market, which is still in the early stages of gaining widespread consumer acceptance. Zoran also has a new digital camera chip, which enables a person to view a picture immediately and discard if not desired.
With strong end market prospects, Zoran's sales and earnings momentum should take-off significantly in 2000 and beyond. International Data Corp. says digital cameras are expected to grow from 4.6 million units in 1999 to nearly 29 million by 2003, for a compound annual growth rate of 60%.
The strong business prospects have prompted analysts to raise their earnings estimates. For example, Preferred Capital Markets analyst Brian Alger recently lifted his 2000 estimate by $0.21 per share to $1.18 per share, which would be well ahead of the $0.47 per share Zoran is on track to earn this year.
Bottom Line:
Assuming only a slight expansion of Zoran's multiple, to 40 times, a price target of $47 is certainly within range during the next 12 to 18 months. |
