DISCLAIMER - Currently Research, No Position, All Input Appreciated
So It's Back To Work?
Then Think About HURC.
Horco Companies, Inc. - CNC systems manufacturer
Address : One Technology Way, P.O. Box 68180, Indianapolis, IN 46268-0180
Phone # : (800) 634-2416
Website : hurco.com
My first signal to look at HURC was the tremendous increase in income it reported in 97Q3 report as follows:
>>INDIANAPOLIS, Aug. 20 /PRNewswire/ -- Hurco Companies, Inc. (Nasdaq:HURC) today announced results for its third fiscal quarter, which ended July 31, 1997. Net income for the quarter was $2,534,000 ($.38 per share), more than two and one-half times the $957,000 ($.16 per share) reported for the comparable period in fiscal 1996<<
Looks good, but this was part of the same 97Q3 earnings report:
>>INDIANAPOLIS, Aug. 20 /PRNewswire/ As was the case in the immediately preceding quarter, the increase in net income was attributable primarily to the receipt of licensing fees by the Company's subsidiary, IMS Technology, Inc., which is pursuing patent infringement litigation against various manufacturers and end-users of computer numerical controls for machine tools.<<
So, a majority of their income the past two quarters was realized from successful settlement of lawsuits filed alleging competitors violated HURC patents. So what were the terms of the settlements (multiple suits).?
>>INDIANAPOLIS, Ind., Sept. 15 /PRNewswire/ HURC has realized approximately $8,100,000 in net proceeds and will realize an additional $1,900,000 in net proceeds through 2001.<<
>>INDIANAPOLIS, Ind., Sept. 15 /PRNewswire/ ... will license its interactive CNC patent to Amada Metrecs Co., Ltd. and affiliate companies for a one-time cash payment of approximately $1.2 million. The company anticipates that this license, after taxes and expenses, will increase Hurco's net income by approximately $680,000<<
It appears HURC is licensing the rights of it's apparantly superior technology to competitors. Hmmm.. wonder what they are doing with all that money?
>>INDIANAPOLIS, Aug. 20 /PRNewswire/ due primarily to the application of licensing fees to reduce outstanding borrowings.<<
Cool, pay off all their debt, allowing them to finally operate free of debt and interest payments. Well, at least thats the idea:
>>INDIANAPOLIS, Aug. 20 /PRNewswire/ At July 31, 1997, total debt had declined to $15,986,000 from $18,522,000 at April 30, 1997 and $23,659,000 at July 31, 1996<<
They have some pretty big bills, and with most of the licensing money already spent, they will soon have to earn their way again with sales. At least they should be OK there.
>>INDIANAPOLIS, Aug. 20 /PRNewswire/ For the nine months ended July 31, 1997, however, sales and service fees of $69,495,000 remained below the $72,358,000 reported for the comparable 1996 period<<
At least the hope for a brighter may be just over the horizon for HURC.
>>>INDIANAPOLIS, Aug. 20 /PRNewswire/ A strengthening U.S. dollar throughout fiscal 1997 continued to negatively impact revenues when translating foreign sales into U.S. dollars, with the cumulative effect for the first nine months of the year totalling approximately $1,600,000, as compared to rates in effect during the prior year<<
In all fairness, the successful settlement of earlier suits suggest that there is possibly some more money coming in terms of one-time lump payments.
>>Aug. 11, 1997, Hurco Cos. Inc. HURC further stated that it ... is continuing to pursue its infringement litigation with six major defendants and is also engaged in licensing discussions with about 10 companies that are not parties to the litigation.<<
>>INDIANAPOLIS, Sept. 15 /PRNewswire/ Hurco continues to aggressively pursue its lawsuit against other defendants, including Mitsubishi Electric Corp., Mitsubishi Electric Industrial Controls, Inc., Yamazaki Mazak Corp., Yamazaki Mazak Trading Corp., Mazak Corp., Okuma Machine Works, Ltd., Okuma America Corp., Allen-Bradley, Inc. and Haas Automation, Inc.<<
After that though, the party is really over. At that point (I do not have a timetable established), HURC really needs to stand on it's own two feet. To consider what may transpire, here are some numbers on HURC:
a. Last = 8 9/16, 52-wk high = 9 1/2, 52-wk low = 4 3/4
b. Average volume = 44,200 vs. 11/10/97 volume = 7,200
c. Current bid = 8 9/16 vs. current ask = 8 7/8
d. Total shares = 6.5 Million vs. short interest shares = 1,490
e. HURC sales (1-yr %) = -4% vs. industry sales (1-yr %) = 11.3%
f. HURC sales (5-yr %) = 4.11% vs. industry sales (5-yr %) = 8.74%
g. HURC debt/equity = 0.51 vs. industry debt/equity = 0.35
h. HURC book/share = $3.88 vs. industry book/share = $6.37
i. HURC p/e = 5% vs. industry p/e 37%
j. HURC price/sales = 0.98 vs. industry price/sales = 1.02
k. HURC ROA (5-yr) = -8.5% vs. industry ROA (5-yr) = 2.4%
l. HURC ROC (5-yr) = -12.2% vs. industry ROC (5-yr) = 4.8%
m. HURC net profit (5-yr) = -6.7% vs. industry net profit (5-yr) = 2.0%
n. Net income 96 = 4.3M, 95 = 0.2M, 94 = -5.8M, 93 = -21.1M, 92 = -5.8M
o. Total assets 96 = 59.8M, 95 = 61.4M, 94 = 59.6M, 93 = 67.3M, 92 = 84.3M
HURC price has almost doubled from 52-wk low based on the settlement of these suits. Take these away, and look at what is left. A company that has continuously lost money, has sales growth that is negative in value, has accumulated way too much debt, has realized very poor profits (negative), has allowed assets to disappear, has not been able to effectively use it's assets or capital, and despite very low valuations of p/e, psr, etc. has not attracted any signifigant attention from investors.
Looks like it's possible HURC may return to it's good old ways, and re-acquire it's good old stock price between $4 - $5. Despite having received a substantial amount of cash in the settlement, their debt is still higher than the industry average. Also, having sold the rights to their superior technology to competitors, HURC no longer has a competitive edge in the industry.
Price/volume chart shows a large momentum move beginning early August. Noticeable volume spikes occurred Aug 20th = 214,200, and October 28th = 144,900, compared to average = 44,200. Yesterday's volume was 7,200 shares, and looks like most of it happened early in the day.
I used Window on Wallstreet Deluxe to plot what they call RATE indicators (combination of multiple factors) to look for potential sell points. The eps/macd RATE indicator triggered selling on 09/15/97 at $8.438 and 10/17/97 at $8.50. The eps/rsi RATE indicator triggered selling on 09/11/97 at $8.50 and 10/14/97 at $9. The eps/stochastics RATE indicator triggered selling on 09/12/97 at $8.50.
If momentum buyers are watching these or similar indicators, then they are probably well into a retreat from HURC. The volume has been tapering off steadily since then, and might indicate there are very few buyewrs left at this price level. I don't know if a fall might preceed the release of earnings that reflect past performance. I also don't know if they may have turned over a new leaf, but that appears unlikely.
Here are the links for HURC:
news is at : biz.yahoo.com
chart is at : quote.yahoo.com
filings are at : edgar-online.com
The following quotes from the most recent 10-Q on September 10, 1997 sum it up pretty well.
>>The increase in sales of CNC-operated machine tools occurred both in the domestic market where the increase totaled $896,000, or 17.0%, and in the European market, where the increase totaled $2.1 million, or 26.9%, in spite of the unfavorable effect of translating foreign currency sales. These increases were offset, however, by a decrease of $932,000, or 78.7%, in South East Asia as a result of adverse economic conditions in that region<<
>>License fee income for the third quarter of fiscal 1997, which represented approximately 48.1% of income before taxes during that period compared to 1.5% in the corresponding period in fiscal 1996,<<
>>There can be no assurance that IMS will enter into license agreements with any of the remaining defendants or any other companies, or that the terms of any future license agreements will be similar to those previously entered into. <<
>>Sales of CNC-operated machine tools, which totaled $43.9 million in the first nine months of fiscal 1997, were 6.5% below the $47.0 million recorded during the corresponding fiscal 1996 period. The decrease occurred in the U.S. market, with a decline of $2.3 million, or 11.8%, as well as in S. E. Asia, where the decline of $1.5 million, or 68.8%, was most pronounced and reflected the economic turmoil in that region<<
>>In light of an increased level of finished product on hand available for shipment, the company has reduced scheduled purchases of machine tool products from its contract manufacturers to reduce finished goods inventories in the fourth quarter of fiscal 1997 and the first half of fiscal 1998, which will favorably impact future cash flow from operations. <<
I'm very new to this! Can you let me know if this appears like a potential loser (oops, i mean winner), if there is enough potential downside to justify further study, and if i have looked at the right informaiton or overlooked vital information? I know I'm at the right place, but I also understand everyone is busy with their own picks too.
Regards, JB |
