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Technology Stocks : THREE FIVE SYSTEM (TFS) - up from here? -- Ignore unavailable to you. Want to Upgrade?

To: k.p. chen who wrote (849)	1/23/1998 1:49:00 AM
From: Noblesse Oblige	Read Replies (2) \| Respond to of 3247

Hi KP, I am afraid I couldn't easily follow your earnings model. However, I have drawn one of my own, though it is obviously "vulnerable" to the exact timing of shipping dates on some new production runs. I am assuming that sales will be approximately $20 million, and that operating margins will come in somewhere near the 24% level. (This would be down slightly from quarter four, but easily defensible in light of the fact that TFS will be more effectively sourcing some of its raw materials as well as continuing to benefit from the fall of the Philippine peso.) Thus, operating profits could be around $ 4.8 million. Assuming SG&A of $ 1.8 million, R&D of $1.45 million, and interest income of $ .1 million, pretax profits would be about $ 1.65 million. With taxes at 40% ($ .66 million), after tax earnings could be about $.99 million, or roughly 13 cents per share. It is very important to note that a swing of $ 1 million in sales results in a difference in net income of nearly two cents per share. This tremendous leverage makes earnings estimate judgements exceedingly difficult, and I have to admit that my "seat of the pants" judgement (which differs from intellectual judgement!) is that this number will be modestly exceeded. Nevertheless, we won't know the reality of the first quarter earnings report until approximately April 10th. Following that report, the numbers should go straight up. In fact, I expect that second quarter revenues should show a significant increase, probably rising to the $26- $28 million range. A little effort with your trusty pen (and making allowances for a modest increase in R&D and SG&A from the first to the second quarter) and stable profit margins results in earnings of $ .22 to $ .26 per share. The third and fourth quarters will show additional dramatic increases. My experience suggests that the optimal time to purchase the shares for trading accounts will be immediately following the first quarter report. Unfortunately, those that trade large size can not wait until the "last minute" to prepare for those developments, so investors should give some consideration to beating the crowd. Take care KP.