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Technology Stocks : VOXX (AUDIOVOX CORP) -- Ignore unavailable to you. Want to Upgrade?

To: Joseph Strohsahl who wrote (142)	6/22/2000 9:41:00 AM
From: Joseph Strohsahl	Respond to of 168

Prudential Securities Strong Buy VOXX SECU: AUDIOVOX BEAT OUR & CONSENSUS 2Q FORECASTS, DESPITE WEAK MARGINS 04:54pm EDT 20-Jun-00 Prudential Securities (J.THAYER 212-778-3201) VOXX AUDIOVOX BEAT OUR 2Q EPS EST, AS WELL AS CONSENSUS FORECAST, DESPITE WEAK MARGINS. BOOSTING VOXX FY00 AND FY01 EPS ESTS SLIGHTLY, ADJUSTING PRICE TARGET R E S E A R C H N O T E S June 20, 2000 OPINION ========== Current: STRONG BUY Analysts: James L. Thayer, CFA (212) 778-3201 RISK: HIGH 12-Month Target Price: $50 ======================================================================= Ind. Div.: -- Yield: -- Shares: 22.1* Mil. 52-Wk.Range: 73-10 _______________________________________________________________________ EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 11/99 $ 1.28 $ 0.16 $ 0.22 $ 0.32 $ 0.56 Current 11/00 $ 1.65E 12.6X $ 0.25A $ 0.30A $ 0.44E $ 0.66E Prior 11/00 $ 1.60E $ 0.26E $ 0.45E $ 0.64E Current 11/01 $ 1.88E 11.0X $ 0.30E $ 0.35E $ 0.52E $ 0.71E Prior 11/01 $ 1.85E $ 0.68E *There are two classes of shares outstanding: Class A has 19.9 million shares outstanding and each share is entitled to one vote. Multiples, price targets, ranges and volumes are based on Class A shares. Class B has 2.3 million shares outstanding, is not publicly traded, and each share is entitled to ten votes. At any time, a Class B share can be converted into a Class A share. SUMMARY: AUDIOVOX REPORTED A STRONG FY00-2Q; BOOSTING OUR FY00 & FY01 EPS ESTS SLIGHTLY; KEEPING OUR STRONG-BUY RATING BUT CUTTING OUR PRICE TARGET _ VOXX reported a quarter that was characterized by strong sales, a very weak gross margin for the wireless-handset business, but adequate operating margins. _ EPS included a small gain on the sale of an investment. _ Investors apparently are concerned about the weak gross margin in VOXX's largest business. We note that VOXX's strategy means a weak gross margin but a strong operating margin and less risk. _ We are boosting our EPS estimates slightly. _ We are keeping our Strong-Buy rating - - the multiples attributed to EPS for this fast-growing company appear to be very cheap, compared to both comparable companies as well as VOXX's assumed growth rate of 25%. _ We are lowering our price target but it continues to be well above the current price level. AUDIOVOX REPORTED A VERY STRONG FY00-2Q. . . During the FY00 2Q (ended May 31), VOXX's EPS rose 36.4% to $0.30 from the year-earlier $0.22 (before a non-operating non-recurring gain of $0.12). Sales climbed 57.7% to $381.6 million. Although not all details are available, it appears that margins were mixed (which would conform to the company's strategy of allowing gross margins to slide but boosting operating margins). Highlights of the quarter were as follows: _ Sales of wireless-handsets ("cellular phones" and related products) advanced 67.7% YOY and accounted for about 82% of total sales. About 1.9MM handsets were sold during 2Q. Sales were propelled by strong CDMA-product demand, while sales of analog products continued to slide. (VOXX is #2 in the domestic CDMA business.) Component shortages affected the small TDMA and GSM businesses but not CDMA. Verizon was the business's largest customer in 2Q, accounting for about half of sales. _ Sales of consumer electronics rose 25% YOY and accounted for the remaining 18% of total sales. New products helped lift sales. _ The gross margins for the wireless-handset business dipped to 7.2% (they had been 9.0% a year earlier and 9.5% for the previous quarter). VOXX has decided to pre-sell most of its products (in 2Q, 70% of wireless handset sales were pre-sold) in order to reduce risks and win large customers (its customer base is consolidating); the negative aspect of this strategy is that margins are much weaker). Also, high freight costs (due to the need to air-ship some products) hurt margins. _ The operating margin was 2.4% (compared with 2.7% in 1Q and 2.2% a year ago - - typically 2Q is a very weak quarter for the operating margin). Operating profit rose 73% YOY. As the wireless-handset gross margin has shrunk, the operating margin has expanded since overhead costs for the above-mentioned pre-sell strategy are low. _ EPS for the latest period were boosted by a $0.02 gain from the sale of an investment in order to finance an ad campaign (the incremental ad expenditures penalized EPS by $0.02.) This may be a recurring source of gain. BEATING OUR EPS ESTIMATE AS WELL AS THE CONSENSUS FORECAST We had predicted sales of $355 million and EPS of $0.26. The consensus EPS estimate was $0.27. Wireless-handset sales beat our forecast but the gross margin was below our estimate. SALES AND PROFITS ADVANCED FOR THE FY00 FIRST HALF During the FY00 1H, EPS rose 45.9% to $0.54 from the year-earlier $0.37 on a sales gain of 59.6% to $721.8 million. The operating margin was 2.5% versus 2.3%. WE HAVE BOOSTED OUR EPS ESTIMATES FOR FY00 AND FY01. . . We have reviewed our EPS estimates for the next 18 months in the light of better-than-expected 2Q sales and EPS. We have raised our EPS estimate for FY00 to $1.65 from $1.60; our new estimate is 28.9% above FY99 EPS of $1.28. In the latter half of FY00, results of both businesses should benefit from new products. Also, sell-thru of existing products will likely be key. Our FY01 EPS estimate has been boosted to $1.88 from $1.85, reflecting an adjustment to 4Q EPS. Our new forecast is 13.9% above the EPS that we now expect for FY00. As in the past, sales and profits should pick up dramatically in 2H (versus 1H). We are assuming that there will be further investment sales to finance further ad campaigns. . . .BUT WE HAVE ADOPTED A CONSERVATIVE STANCE FOR THE PRICE TARGET LOWERING IT FROM $65 TO $50 We think that investors may take a while to get used to the new strategy and the likely higher growth in sales. Thus we have opted for the conservative stance in cutting our 12-month price target for VOXX's shares to $50 from $65. Our new price target is about 27X the EPS that we expect for FY01; this multiple (which is within the historical range for VOXX) implies a very conservative P/E: EPS growth ratio.