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Technology Stocks : EFII - Electronics for Imaging -- Ignore unavailable to you. Want to Upgrade?

To: earthling who wrote (651)	12/28/1997 7:28:00 PM
From: VICTORIA GATE, MD	Read Replies (1) \| Respond to of 1460

all Chatfield Dean & Co., Inc. today reiterated its STRONG BUY rating on Electronics for Imaging, Inc. (NASDAQ: EFII - news) in a research update titled ''Liquid Asset Clarification, Raising Buy Limit to $25.'' Please add our coverage to your database. Rating: STRONG BUY 12-18 month price target: $37 Research (303) 740-0006 -0- Industry: Desktop Publishing/PrePress December 17, 1997 Electronics for Imaging, Inc. $13.63 Liquid Asset Clarification ($255.6 in cash, near cash) Price Target- $37 Raising Buy Limit to $25 Recommendation: STRONG BUY Rating: GROWTH WITH RISK Price 52-Week Shares Market Avg.Daily Dividend Symbol Exchange 12/17/97 Range S&P 500 Out Cap. Vol.(shrs.) Yield% EFII NASDAQ $13.63 $13.19- 965.54 52.4M 714.2M 3.88M none $57.88 EPS SUMMARY FYE-DEC Year* Q1-Mar Q2-Jun Q3-Sep Q4-Dec Book Value/Share: $6.20 1996A $1.13A $0.23A $0.25A $0.28A $0.36A Current Ratio: 5.02 1997E $1.27E $0.37A $0.41A $0.43A ne LT Debt/Equity 0.01 1998E $1.90E ne ne ne ne Quarterly results may not add due to rounding and weight-average calculations for shares outstanding *Consensus Estimates adjusted to reflect new expectations based on the December 12th announcement. ne=not estimated SUMMARY AND INVESTMENT THESIS Electronics for Imaging (Electronics') is the leading supplier of technologies for high-quality, digital color printing over computer networks with an estimated 75% market share. On December 15th, we initiated coverage on the stock based on a contrarian thesis that the Company's soft top-line projections, as made to the street on December 11th, may not have justified the resulting decrease of more than 60% in the price of the stock. Our contrarian view was supported by the observation that the Company has over $77 million in cash and cash equivalents, and over $255 million in liquid assets when short-term investments are included, with zero corporate borrowings. Considering the Company's liquid asset position, we are astounded that, at current levels, the stock is trading nearly three times cash, cash equivalents and short-term investments. We are reiterating our STRONG BUY on EFII shares with a 12-18 month price target of $37, for the portfolio of risk-tolerant, growth oriented investors, based, in part, on the following investment highlights: -- Healthy Balance Sheet Bodes Well for Supporting Product Introductions and Market Expansion. Including cash, cash equivalents and short-term investments, Electronics' has liquid assets totaling $255.6 million as of September 30, with zero corporate borrowings (the $4.5 million reported as long-term debt on the Company's balance sheet is related to its purchase of land for its new corporate campus in Foster City, California for $20.2 million in cash and the assumption of $4.5 million in bonds payable due through 2009). In our opinion, this represents a healthy balance sheet and could give the Company the flexibility to weather additional problems if presented in the near future. In addition, from a value perspective, the Company's stock is currently trading at nearly three times cash, cash equivalents and short-term investments. -- Electronics' Dominance of its Market is Impressive. We estimate the Company owns 75% of its market. In addition, based on conversations with Electronics' management, we believe that some of the professional printing organizations, such as Kinko's, may be in the process of standardizing color copiers on the Company's proprietary Fiery technologies. -- Expanding Market Opportunity Yields Upside. The Company operates in an expanding market, which independent industry estimates approximate at 30-40% unit growth. We believe that, although the color imaging market has made significant strides, it is still in its infancy. -- Market Penetration Intriguing. Although not to the extent of a Company like Intel and its relationship to the desktop, we view the supplier power that the Company has over its OEM's for providing the "engine" for color printing suggests an intriguing analogy. Electronics' does supply a large percentage of the engines for color printing manufacturers as Intel supplies the majority of the processors for PC's. -- The Shareholder Lawsuit Could Prove to be without Merit. In a class action suit has been commenced (December 16) in the California courts on behalf of purchasers of Electronics for Imaging, Inc. common stock during the period April 10, 1997 through December 11, 1997 (the "Class Period"). The Complaint charges Electronics' and certain of its officers and directors with violations of securities laws for misrepresenting the status and strength of Electronics' business operations and earnings growth. Although we have yet to obtain a copy of the suit, and have not analyzed the validity of the charges therein, it is our experience that companies who experience such dramatic decreases in the price of their stock are often left open for suits of this nature. This suit, while of important consideration, does not alter our investment thesis as stated in our last report dated December 15. The Company has stated that the charges presented are groundless, frivolous and will be defended without compromise. SELECTED RISK FACTORS There can be no assurances that Electronics' can overcome the recent problems stated in this report, or that new product lines will be deployed in a timely manner and will gain market acceptance. There can be no assurance that the Company will be able to successfully compete against competing product offerings. Electronics' relies heavily on its OEM partners and there can be no assurances that it will retain contracts to supply products to its current OEM partners. In addition, there can be no assurances that economic or political events will not materially affect the Company's international operations. VALUATION AND INVESTMENT CONCLUSION We believe that, due to the unknown lingering impacts of "Asian Flu" and the timing of product introductions, 4Q'97 and 1Q'98 could be extremely difficult quarters for Electronics for Imaging, Inc. However, we are estimating that shares of EFII could trade at what could prove to be a conservative P/E of 20X consensus 1998 EPS of $1.90 (adjusted for new expectations based on the Company's recent guidance) in the next 12-18 months, indicating a price target of $37. We have chosen this P/E based on the observation that investors have witnessed impressive earnings growth for the last 16 quarters which, on average, ran at a compounded annual growth rate of approximately 50% (from Q4'93-Q3'97, inclusive). Discounting our price target at a decreased 45% (10% less than the 55% we used in our report dated December 15), to account for the risks inherent in investment in EFII shares, but given consideration to the clarification by management to that short-term investments represent very liquid assets, we now calculate a current buy limit of $25 (raised from the $20 published in our last report). When we initially analyzed the Company's balance sheet, we observed cash and cash equivalents of only $77 million making our price to cash valuation, though favorable, not as impressive as three times cash, cash equivalents and short-term investments. Although we expect the next 1-2 quarters to be challenging for earnings-oriented investors, based on our opinion that Electronics will deploy their substantial resources to introduce new, high-growth products while continuing to grow existing franchises, we recommend investment in EFII with a STRONG BUY rating for the portfolio of risk-tolerant, growth oriented investors. All investments involve risk. The risk inherent in a particular security may not be appropriate for you. Please consult with your Chatfield Dean & Co. Account Executive to obtain assistance in selecting appropriate investments. This report is published for informational purposes only and is not to be construed as an offer or the solicitation of an offer to sell or buy the security. The information contained herein is based on sources which we believe to be reliable, but we make no guarantee or representation about the completeness of the statements or summaries of available data contained herein. This information is provided as of the date of this report, is subject to change without notice. Furthermore, the information in this report should be considered outdated 90 days after publication, or such earlier date as circumstances may require, and should not be relied upon thereafter to develop investment strategies. Shares of ELECTRONICS FOR IMAGING may not be eligible for purchase or sale in a particular state. Officers, Directors and employees of Chatfield Dean & Co., Inc. or their families may have a position in the securities discussed herein as principal or agent, which positions may be increased or decreased in the future. Officers, directors or employees of Chatfield Dean & Co. may also hold a position in this security. Chatfield Dean & Co. does not make a market in the securities of ELECTRONICS FOR IMAGING. Additional information relating to ELECTRONICS FOR IMAGING is available upon request.