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Wednesday, November 13, 2013

1 Million Float ARCW Reports Blow Out Earnings And Mentions 3D Printing Top Priority Going Forward

ARCW which I have been in and recommended since $8.65, reported super strong results and I contend that this is comparable to PRLB which has a P/E of 60.

ARCW 10-Q Filing

ARCW Earnings Press Release

4 Reasons From These Filings That Shorts Are In Big Trouble

1) Current Results

2) MIM AND 3D Printing ! New 3D Printing comments ! "3D Printing Top Priority Going Forward"

3) Organic growth in the key division was 22% Excluding impact of acquisitions

4) Strong Future Outlook

1) Current Results

ARC GROUP WORLDWIDE, INC. REPORTS RECORD QUARTERLY RESULTS

For the quarter ended September 29, 2013 compared to the quarter ended September 30, 2012 (fiscal first quarter) :

• Net Revenues Increased 38.1%, to $18.4 Million

• Adjusted EBITDA Increased 80.8% to a Record $3.4 Million

• Earnings Increased from a Prior Year Period Loss to $1.3 million

• Adjusted EPS Increased 47.8% to a Record $0.34

Bank Debt Paid Down by 42.2%, or $10.6 Million

2) MIM AND 3D Printing ! New 3D Printing comments ! "3D Printing Top Priority Going Forward"

Mr. Jason Young, Chairman and CEO, said, “I am pleased to report outstanding quarterly results that reflect continued growth in revenue, cash flow, and earnings per share. As the leader in Metal Injection Molding and other niche manufacturing businesses, we continue to focus on building our market position in these areas, both organically and through acquisitions.” He further added, “We are also focused on bringing technology and innovation to manufacturing. We have made good progress utilizing 3D printing and view it to be a key area of future growth for ARC in production and prototypes.”

The Precision Components segment also utilizes 3D printing to provide a more complete solution to its customers. It ’ s applications in the business have increased in the past two years and the Company has committed technical development resources to utilize the technology to dramatically reduce time to market from months to weeks. ARC views 3D printing to be a burgeoning area of growth for the Company, both in production and prototypes. The Company is making 3D printing a top priority going forward, given the strategic fit to the Precision Components product and customer base.

3) Organic growth in the key divisions was 22% Excluding impact of acquisitions

Sales for the Precision segment increased significantly, by $5.2 million or 45.7%, over the comparable prior year period. The AFT Acquisition in fiscal 2013 contributed $2.7 million in additional sales in the first quarter of fiscal year 2014. Excluding the Acquisition’s impact, sales growth compared to the comparable prior year period still increased $2.5 million, or 22.0%. The firearms market segment at AFT continued to grow, as the Company was able to meet increased demand for, and secure several new programs, from their customers in this market segment. In addition, AFT-HU contributed to the sales growth through increased demand related to the automotive turbocharger customers. FloMet saw a slight increase in sales over the prior year quarter as a result of additional production volume in the consumer market segment. Tekna Seal did not experience growth over the prior year period as a large, intermittently recurring order did not occur in the current quarter. However, Tekna Seal did recently receive an annual blanket order from a new customer in the aerospace industry which is encouraging progress.

4) Strong Future Outlook

The MIM businesses received 15 new tools this quarter representing approximately $2.0 million in potential incremental revenue at anticipated production volumes. Additional capacity in AFT-US is also being added to accommodate the continued growth in the firearms market segment for product lines already tooled on which volumes are forecasted to increase as soon as that additional capacity is in place. Further, new firearms business, which was tooled within the last three quarters, is expected to launch in the next two quarters. FloMet received new orders from several medical device customers in the period that will impact revenues later in this fiscal year, including a new customer in China. Separately, we expect continued demand in Europe for automotive turbochargers, which we hope will translate into increased revenues at AFT-HU. Tekna Seal saw positive indications across its markets with orders for new prototype applications having been received. Prototypes typically represent future production orders commencing between one and three years from original submission. In addition, Tekna Seal is experiencing increases in new medical customer orders, prototype and production orders from another aerospace controls customer, and for new development technologies associated with power storage devices. These increases in revenue may however be offset by typical customer attrition, but our goal is to add as much incremental revenue as possible. Finally, the Company believes its continued investment in technology and innovation, specifically those related to automation, robotics, 3D printing and molding, will continue to improve efficiencies and hopefully provide new sources of revenue.

I am long this stock originally from $8.65 and have taken some profit in the $20's and still own some shares. This is not a blog post that I am going to chase this stock today for a new positions after the big move it has made. But for being long like I am from the $8-$12 area there is no reason to me why this stock cannot be compared to a PRLB which has a P/E of 60. Anyone short ARCW after this report in my opinion is in trouble and we could see a big short squeeze today. This blog is not investment advice and please see all disclaimers at the bottom. Chasing low float stocks can be dangerous and risky.

Thursday, October 31, 2013

Tuesday, October 22, 2013

Why ARCW Deserves A 3d Printing Multiple And Is Poised To Double Or Triple

ARC Group Worldwide Inc. (ARCW) is an under followed and under the radar Company. They are a leader in a unique manufacturing niche and like the 3d printing boom, they are experiencing rapid growth, profitability and cash flow from operations. It is my opinion, that the shares are greatly undervalued compared to other growing manufacturing specialty technology companies.

ARC, through its operating subsidiaries AFT, AFT-H, QMT, ARC Wireless LLC, and ARC Wireless Ltd., is a global diversified manufacturer, active in MIM, specialty hermetic seals, flanges and wireless equipment.

ARC's mission is to bring innovation to traditional manufacturing. ARC is focused on building its core manufacturing businesses in precision components, flanges, fittings and wireless equipment. The Company focuses on building these units through organic growth, as well as vertical and horizontal acquisitions. In addition to making acquisitions that are strategic to ARC, the Company evaluates new manufacturing niches that fit into its broader objectives, which are bringing manufacturing back to the US, bringing technology to traditional manufacturing, as well as optimally position the Company within the global manufacturing supply chain.

On October 4th, 2013, ARCW reported fourth quarter 2013 net income of $1.6 million and $3.0 million for fiscal year ending June 30, 2013. The fourth quarter and full year results are driven by improved performance in all of our manufacturing operations and higher sales revenue resulting from the reverse acquisition between ARC and Quadrant Metals Technologies (QMT) and the acquisition of Advanced Forming Technologies, Inc. (AFT) and AFT-Hungary Kft., (AFT-H). ARC also reported adjusted earnings per share (Adjusted EPS) of $0.30 for the fourth quarter 2013 and $0.85 for the fiscal year ending June 30, 2013.

For the fiscal year ending June 30, 2013, the Company's total sales were $68.5 million, growth of 125.3%, or $38.1 million, over $30.4 million in fiscal year 2012. Sales for the fourth quarter ending June 30, 2013 amounted to $19.5 million compared to $7.7 million in the prior year fourth quarter an increase of 153.7% or $11.8 million. Growth in the precision components segment of the Company's business has been driven by increased demand for components manufactured by the Company's three metal injection molding ("MIM") businesses. These three companies, FloMet LLC, AFT, and AFT-H are the pioneers and recognized technological leaders in the industry. MIM is a cost effective method of producing high volume precision metal components and is gaining increasing adoption throughout industries such as medical devices, automotive, consumer durables, defense and firearms. The MIM businesses have had a positive impact on the Company's sales and we anticipate sales to continue to increase as the market demand for components increases. The Company's continuous improvement focus and strategic investments in technologically advanced capital equipment, like robotics and automation, have allowed it to increase efficiencies and reduce costs while also significantly increasing available capacity for growing demand. The Company reported 27% gross margins for the fiscal year ending June 30, 2013 and 28% in the fourth quarter 2013.

Commenting on the recent MIM performance, Robert Marten, CEO of the QMT-MIM division stated, "We now unequivocally have the world leader in MIM and have integrated our three MIM factories into a world class, global MIM operation. We are focused on continuing to provide exceptional product quality and service to our customers, as well as further strengthening our position in the MIM industry by growing our existing operations, vertically integrating and opportunistically evaluating acquisitions."

"We are very pleased to now run the world's leader in MIM and look forward to continued growth in that division," said ARC Chairman and CEO Jason Young. "While we continue to build our MIM division, we are trying to build similar market dominance in our other manufacturing divisions, through organic growth, as well as acquisitions both horizontally and vertically. We are also big believers in US manufacturing, as well as bringing technology and innovation to traditional manufacturing. We have brought significant technology to our various businesses, and view the continued adoption of robotics, automation and 3D printing as key drivers to growth in manufacturing, particularly in the US."

ARCW is the leader in a unique manufacturing process that lowers costs. From their website it states, "For metal injection molded and powder injection molded components, delivered accurately and on time, look to the innovation and service provided by AFT. We have invested in the latest technology to provide cost-effective, efficient, and customized solutions to clients' tooling and quality metal injection component manufacturing needs. Our MIM process is an alternative to investment casting processes, offering a final product with finer detail and greater density, and usually a lower production cost."

The metal injection molded (MIM)_ and powder injected molded markets are both forecasted for big growth, verifying the ARCW forecasted comments.

Read the articles "MIM Surges Forward" and "SciPiVision's Market Study Finds Strong Growth For Powder Injection Molding" to learn more about the growth of these processes.

3D Printing Companies 3D Systems Corp. (DDD), Stratasys Ltd. (SSYS), and The ExOne Company (XONE) are also in a fast growing manufacturing industry that is a unique niche. ARCW mentions 3d printing in their last press release:

"We have brought significant technology to our various businesses, and view the continued adoption of robotics, automation and 3D printing as key drivers to growth in manufacturing, particularly in the US, said ARC Chairman and CEO Jason Young"

DDD has a P/E ratio of 43, SSYS has a P/E ratio of 46, and XONE has a P/E ratio of 112, all based on next fiscal years forecasts. ARCW reported $0.30 in their last quarter and said they anticipate sales to continue to increase. With a conservative extrapolation of last quarters EPS we get a full year $1.20 EPS for 2014 (even though the Company said they expected growth). Applying the 3d printing companies P/E ratio of 44, ARCW should be a $52.80 stock. Even with a traditional growth P/E of 20, ARCW should be a $24 stock. With only 5.7 million shares outstanding, a public float of only 1mm shares, and a Company stock buyback in place, I believe ARCW deserves to double or triple from the $10.10 closing price today based on their strong growth and leadership position in a rapidly growing important manufacturing process.

Friday, September 20, 2013

My iPhone 5S Review

iPhone 5S Review - Obviously this phone is a big upgrade for iPhone 4s and lower. However, after having the iPhone 5 with the upgrade to iOS7 for a few days and now comparing it to the iPhone 5S, here are a few thoughts. There is the biometric fingerprint sign on with the iPhone 5S, but I am not sure I want to put my fingerprint out there like that anyway. The camera is faster, shoots rapid fire, multiple pictures, and they say the picture quality is better on the front and back cameras. The one major difference that is very noticeable is that the iPhone 5S is lightning fast and the fastest phone I have ever used !! Lastly, they claim the battery life to be improved as well (too early to tell). So if you are contemplating upgrading from an iPhone 4S or lower, the iPhone 5S is likely the most dynamic phone on the market and you will see a vast difference. However, if you have an iPhone 5 currently and must choose between getting the iPhone 5S or waiting for the iPhone 6 next year, I would wait for the iPhone 6.

Monday, September 9, 2013

How DGLY Was Valued at $113-$132 Per Share

On August 30th I wrote an article on Digital Ally Inc. (DGLY) titled

"Why Digital Ally Inc. Could Double When Compared To Taser International Inc.".

The stock opened at $10.31 that day and has hit a high of $14.50 and now has pulled back to $12.68 and I think this represents a buying opportunity.

Taser International Inc. (TASR) is getting all of the attention so far in the wearable police camera market. However unlike their taser gun, they have not claimed that their body camera is patented. I contend that they have a significant and capable competitor in DGLY.

One thing that is certain, it looks like the wearable police cameras will eventually become standard equipment for police officers as TASR CEO Rick Smith predicted. All one needs to do is perform a search for news on the subject. Recent headlines include:

Proposal: Equip all police officers with mini video cameras to wear during arrests

Judge Orders New York City Police to Wear Cameras

Police board pushes wearable cameras

In California, a Champion for Police Cameras

Risks to DGLY would be competition, however it appears that they are making progress per the following headlines.

On September 6, George Zimmerman was Caught Speeding In Lake Mary, Florida on FirstVu HD Body Cam made by DGLY.

DGLY is listed as one of two required vendors in recently passed Senate Bill 2125 for North Dakota (note that TASR is NOT the other vendor) :

All - See Appendix F Fiscal Note to Senate Bill 2125: Uniform Electronic Recording of Custodial Interrogations Act: Required Gear a. Lapel Audio and Video Devices

DGLY listed as one of two required vendors for the 1804 police officers in the state of North Dakota for its FirstVu Individual Video Camera

DGLY listed on one two required vendors for its DVM 400 in-car video camera.

The two opportunities cited above would more than double its last quarter's revenue.

Value Reserved for the Individual FirstVU HD Camera is $1,528,835 ($847.48 times 1804)

Value Reserved for the In-car video system is $4,882,827

DGLY has integrated the FirstVu wearable camera with their In-car video system and was the only vendor that was listed as required in both categories. The integration of these systems makes them unique.

DGLY has other products that continue to gain traction as well:

The Mission and Installation Contracting Command Fort Bliss, TX (MICC Fort Bliss) intends to award a sole source purchase order for Advanced Wireless Microphones and Microphone Upgrades to Digital Ally.

Kiefer funds police in-car video systems

As mentioned in my previous article, the U.S. Patent and Trademark Office Allows Two Patent Applications for Digital Ally's Core Product Line. The second patent relates to remote transmitters worn by law enforcement personnel in the field. This patent application covers, among other features, on-board storage of recorded data to insure that no evidence is lost when law enforcement officers are away from their vehicles.

At a market cap of just over $27mm, I contend that DGLY is very undervalued when compared to historical prices and the market opportunity before them. DGLY was at a split adjusted high of $91.28 in 2008 during the Great Recession.

In 2008, DGLY reported EPS of just $0.22 per share. In 2013, DGLY has reported $0.33 in adjusted EPS for the first half of 2013 and said the second half looks promising. In 2008 when DGLY had approximately 15.8mm shares outstanding, analysts had target ranges of $15-$17.50 for the stock. The $17.50 target was based on forecast 2009 EPS of $0.83 and again currently DGLY has done $0.33 adjusted EPS in the first half of 2013 alone. That $15-$17.50 target range with the 15.7mm shares outstanding at the time would have given DGLY a market cap of $237mm-$277mm. Currently with 2.1mm shares outstanding that would mean a current stock price of $113-$132.

The DGLY opportunity reminds me of TASR right before its historic stock price appreciation in 2004 because of their taser gun.

At the time TASR had a small amount of outstanding shares and a great growth opportunity before it just as I believe DGLY has now.

Disclosure: I am long DGLY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Low float stocks can be thin and volatile and risky. I am long originally from the $9's

Friday, August 30, 2013

Why DGLY Could Double When Compared To TASR

Taser International Inc. (TASR) seems to have once again become a wall street darling thanks to their new wearable TASER AXON camera system that captures devices and enhances transparency between law enforcement agencies and their communities. The AXON flex is a digital video camera worn on an officer's body that TASER CEO Rick Smith says "will become standard equipment [at police forces] within the next 5-10 years." This new product has helped send TASR to 52 week highs as it closed at $11.92 yesterday. At next years consensus estimate of $0.37 EPS, this represents a forward P/E ratio of 32. Here is a picture of the AXON camera from their website:

I cannot find anywhere mentioned that this is a patented product. Enter Digital Ally Inc. (DGLY). Digital Ally, Inc. produces digital video imaging, audio recording, and related storage products for use in law enforcement and security applications in the United States and internationally. They also launched a similar product to the TASR AXON:

Introducing the Digital Ally FirstVu™ HD Officer-Worn Video System Since their inception, many body cameras have had limitations that made them difficult for law enforcement entities to fully utilize them. To answer these concerns, Digital Ally used direct input from officers to develop the FirstVu™ HD. The system is comprised of a small 1.75" camera and a separate, thin 2.75" x 4" recording module which may be securely mounted together or separately for more versatile body, vehicle and other mounting options.

Below are pictures of the DGLY camera from their website:

In last quarters conference call, DGLY CFO Tom Heckman said this about the recently launched product, "The FirstVu HD is tracking our predictions. It has been delayed the launch and production levels have been delayed a little bit, but it in no way tampers our enthusiasm and optimism with the revenue potential that unit is. In fact, I have got my numbers, Stan has got his number, but I would be surprised if we couldn't't generate $750k-1 million in revenue in the third quarter from our HD sales based on what we have on the books already. As I said before, the FirstVu HD is truly the leader of that market. It's a Body-Worn market. And I think we are seeing our channel move more into that direction."

Additionally, DGLY recently received two patents and one is very important to this discussion. The second patent relates to remote transmitters worn by law enforcement personnel in the field. This patent application covers, among other features, on-board storage of recorded data to insure that no evidence is lost when law enforcement officers are away from their vehicles.

While I am not a patent attorney, this patent by description seems to me relevant to what TASR and DGLY are doing with their new product.

On the last conference call, there was an exchange between an analyst and DGLY CEO Stan Ross on the patents:

George Whiteside - SWS Financial Services

My next question involves your patents, Stan had indicated that you have challenged some competitors who began using some of your "technology" and now that there has been an award, will that allow you to perhaps get some type of settlement fee, license, etcetera?

Stan Ross - Chairman and Chief Executive Officer

Yes, George, this is Stan. I mean, I think there is two avenues, those that you put on notice that they were a violation, you actually can go after them in regards to damages that may have occurred from that point going forward. I mean, that's one of those things you put them on notice. The ones that are continuing or have a product that's similar to ours that want to and if we elect to allow them to continue down that path, they need to be talking to us concerning some type of royalty to continue to draw that way or otherwise they need to be taking their product off the market or in the situation we will definitely call them on the carpet and have the coach to do so. And they were strong, I mean, I know of one or two in particular worthy competitors that are out there that will not like these moves at all.

DGLY also has a line of products they call event recorders and they recently received the second largest order in their history. The order will be shipped to a major ambulance service provider that delivers emergency medical services throughout the midwestern United States.

"This order for 250 of our DVM-250 series of Video Event Recorders will increase the safety and security of Emergency Medical Technicians ("EMTs") and patients in our customer's Midwestern service area," stated John Rumage, Director of Commercial Sales at Digital Ally, Inc.

CFO Tom Heckman said of this new product on the last conference call, "The commercial market is developing nicely. As I said before, we are expanding beyond the ambulance market. We are pretty much saturated at the ambulance market. There is not many of the bigger players that we haven't got units in or will be getting units into. The likely candidates are we've got a couple of pilot projects going out in cabs, taxicabs throughout several larger cities in the U.S., some limos. And quite recently, we have got an opportunity to outfit the City Public Works Department of a pretty sizable, around midsize city. So, that seems to be an open market for us that we should have the product to answer their needs. So, I am very optimistic the commercial market will continue to develop."

Here is a picture of the event recorder from the DGLY website:

As far as financials, for the first half of 2013, DGLY Total revenue increased 17% to $9.8 million, versus total revenue of $8.4 million in the first half of 2012. Non-GAAP adjusted net income improved to $700,014, or $0.33 per diluted share, versus a non-GAAP adjusted net loss of ($335,261), or ($0.17) per share, in the year-earlier period. "The turnaround in our operating results in the first quarter of 2013 continued into the second quarter, and we are pleased to report that our net profitability for the first half of the year improved by approximately $1.8 million, or $0.86 per diluted share, when compared with the first half of last year," stated Stanton E. Ross, Chief Executive Officer of Digital Ally, Inc. "On a non-GAAP basis, our adjusted net income improved by 286% in the most recent quarter, to $306,462, or $0.15 per diluted share, compared with non-GAAP adjusted net income of $79,411, or $0.04 per diluted share, in last year's second quarter."

As far as future growth, Stan Ross, DGLY CEO stated, "We continue to have one of the most aggressive new product development programs in our industry, which we believe will benefit our shareholders in the second half of 2013 and in future years," continued Ross. "We are particularly enthusiastic about the prospects for our new FirstVU HD body camera in the law enforcement field and our DVM-250 and DVM250Plus event recorders, which are designed to meet the safety and security needs of commercial fleets such as ambulances, taxis, utility vehicles, and shuttle bus operators. Whenever practical, we seek to protect our product and technological innovations by expanding our intellectual property portfolio, and we were pleased to recently announce the receipt of two new U.S. patents for our core product line."

"Overall, we were pleased with our operating results during the first half of 2013, and the outlook for the balance of the year is promising. We have 'right-sized' our manufacturing and expense infrastructure for the current market environment, and we believe the Company is well-positioned to benefit from substantial operating leverage when revenue levels increase," concluded Ross.

Risks include the ability to gain market penetration with these products, as well as competition. However, with $750,00-$1 million in backlog right after launch, it appears they are getting traction. If it becomes true what the TASR CEO said that this product will become standard equipment for all police officers, then that is a big enough market for more than one company to be successful in. In fact a judge in New York recently ordered police to wear these cameras.

DGLY has done $0.33 in adjusted EPS for the first half of 2013 and said the second half looks promising. If they were to conservatively have no growth and replicate those results in the second half of 2013, they would record $0.66 in adjusted EPS. If I apply the TASR forward growth P/E of 32 to this, you would have a DGLY share price of $21.12. Combine that with the company having restructured themselves to leverage higher sales, and to me the future for DGLY has strong potential. Lastly, with only 2.1 million shares outstanding, DGLY could receive more attention once they are known to be competing against the TASR product.

Disclosure: I am long DGLY from the $9's. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Low float stocks can be risky and volatile

Thursday, August 22, 2013

With 357% EPS Growth, Pointer Telocation Ltd. Shares Could Be Valued Over $10

Pointer Telocation Ltd. (PNTR) has a growing client list with products installed in nearly 1 million vehicles in over 55 countries across the globe.

Cellocator™, a Pointer Products Division, has been in the forefront of wireless communication and location technology since 1997 and is a leading AVL (Automatic Vehicle Location) solutions provider for fleet management, car and driver safety, public safety, vehicle security, M2M wireless data communications, asset management and more.

Cellocator's systems are used by transportation companies, security forces, public utilities companies, service companies, commercial enterprises, security companies and others. Pointer's forward-thinking tracking solutions are based on smart, future-proof Telematics technology and design - ensuring users of effortless setup and reliable, network-friendly performance.

Machine to machine (M2M) refers to technologies that allow both wireless and wired systems to communicate with other devices of the same type. M2M has been and is one of the hottest growth sectors in the tech world. M2M stocks have commanded higher P/E ratios. The companies below have similar businesses in the asset monitoring niche of M2M :

Elecsys Corporation (ESYS) has a P/E of 15 on $0.43 TTM EPS

Numerex Corp. (NMRX) has a P/E of 39 on forecasted EPS of $0.26 for next fiscal year.

Ituran Location & Control Ltd. (ITRN) - a direct comparison, has a P/E of 17 on TTM EPS of $1.07

For the first six months of this fiscal year, PNTR has recorded EPS of $0.32. This compares to EPS of $0.07 for the comparable period the prior year. This is EPS growth of 357%.

Adjusted EPS, (which is calculated by adding back to net income, net loss from discontinued operations, the effects of non-cash stock based compensation expenses, amortization of intangibles related to acquisitions and non-cash tax expenses resulting from timing differences relating to the amortization of acquisition-related intangible assets and goodwill) was $0.63. $3.5mm / 5.55m shares outstanding. It should also be mentioned that PNTR generated $3.5mm of cash from operations in the first six months of this fiscal year.

As for comments to if this growth can continue, David Mahlab, Pointer's Chief Executive Officer, commented on the results: "We are pleased by our continued improved performance - both on the top and bottom lines - despite the challenging economic conditions in markets around the world, leading to prices and margins erosion in our Company. We are continuing to devote a great deal of effort in developing and launching new products that will enable us to sustain our leading market position and continue to improve our overall performance. In addition, we continue to explore growth opportunities in additional markets along with our ongoing marketing efforts in Latin America."

Risks could include failure to execute and a general global economic slowdown. However, the Company seems to be exploring growth areas to mitigate this.

I will consider the NMRX P/E ratio an outlier and take the average of ESYS and ITRN P/E ratios to get 16. If PNTR were to get valued with this P/E ratio on their normal EPS run rate of $0.64, PNTR would be a $10.24 stock. If PNTR were to get valued with this P/E ratio on their non-GAAP EPS run rate (excludes non-cash charges) of $1.26, PNTR would be a $20.16 stock. Currently at a share price of $5.20, you can see why I believe PNTR is undervalued. With a low tradeable float of 4.5mm shares, I believe PNTR could be a stock to watch once the EPS gets discovered.

Disclosure: I am long PNTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Monday, July 8, 2013

Why SPEX Could Double Or More In 2013.

Spherix Inc. (SPEX) is a shell that has sold off most of its core operations and now is in the process of purchasing over 222 patents and converting to a business model that to me is very similar to Acacia Research Corporation (ACTG) which has a billion dollar market cap.

SPEX and ACTG have several things in common. They both started as reverse plits with floats under one million shares. They then both devoted resources to purchasing and monetizing patents. They both have invested in a broad portfolio of patents, not just focusing on one patent or industry. ACTG did this years and years ago and has been very successful. SPEX is at the phase ACTG was at in its inception.

Spherix previously announced an agreement to acquire 222 patents from North South Holdings, Inc. principally developed by inventors at Harris Corp., a 118 year old pioneer in wireless communications and equipment and a $6 billion defense contractor. The Harris portfolio has applicability in law enforcement communications, military and homeland security, satellite communications, portable electronics, Wi-Fi, microwave and cellular transmission, and solar concentrator technologies. Additional North South patents cover automated pharmacy ordering practices.

Additionally, SPEX recently signed a further letter of intent with a major private patent ownership collaboration covering additional areas of telephony and telecommunications technology which they expect to close in the third quarter.

What I like about the patent portfolio they are acquiring is that it was developed at Harris Corp. (HRS), and covers multiple growing industries. SPEX has stated in presentations that their goal is to monetize these patents by defense and licensing deals, much like the strategy of ACTG.

Several other companies have entered the patent field and have yet to monetize their patents but have grown to have large market caps.

Vringo Inc. (VRNG) has a market cap of $253 million.

Parkervision Inc. (PRKR) has a market cap of $424 million.

VirnetX Holding Co. has a market cap of $993 million.

Accounting for the shares to be issued to purchase the patents :

If SPEX were to be valued with the same market cap as VRNG or PRKR, their shares would be worth approximately $19.46 to $32.60.

Risks include the inability to monetize the patents or the need for more funding to mount legal defenses. However, with VRNG and PRKR they both significantly appreciated in market cap despite the fact they have yet to be successful in monetization.

Given the fact that SPEX's portfolio was developed at a multi-billion dollar company such as HRS and that they cover multiple high-growth billion dollar industries, SPEX should be a stock to watch for significant appreciation from current levels as VRNG and PRKR made large moves as they converted to patent monetization companies.

Lastly, in my opinion, given its small public float of 650,000 shares, SPEX could be a big mover once these comparisons are made. Shares initially moved to $14.99 when the transformation to a patent company was initially announced back in March of 2013. Now that they have given a timeframe to close and defined the 222 patents more clearly, the stock could be ready to renew its move higher.

Disclosure: I am long SPEX in the $5's. Low float stocks are not for large positions or chasing and can be volatile and dangerous. This is not investment advice. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Tuesday, June 18, 2013

Why DWCH Corp Shares Could Double

Datawatch Corporation (DWCH) is a leader in providing information optimization products and solutions that allow organizations to deliver the greatest data variety possible into their big data and analytic applications.

Big data software companies have been some of the best performing stock of the last year. Tableau Software (DATA) priced it's IPO at $31 this year and now trades at $53 with a market capitalization of over $3 billion. Splunk Inc. (SPLK) trades at over $44 with a market capitalization of over $4 billion.

DWCH trades over $17 today and has a market cap of over $100 million. It announced an acquisition of Panopticon Software yesterday that per their conference call, will put them in closer competition with DATA and SPLK , offering unique industry advantages. From the press release:

The integration of Panopticon's advanced visual data discovery software makes Datawatch the first company to deliver real-time analytics and discovery by accessing the industry's broadest variety of data types simultaneously-including traditional structured relational databases, semi-structured sources like reports, PDF files, EDI streams, print spools and documents stored in files systems or enterprise content management systems, with a new mix of unstructured data such as machine data and social media stored in Big Data solutions or streaming directly from a host of real-time applications.

Associating all relevant data in a visually-rich, real-time analytical environment enables businesses to isolate and resolve problems as they occur, perceive hidden patterns, track emerging market trends, and identify opportunities for competitive advantage and improved business processes. Panopticon's customers span all vertical industries and include some of the largest multinational companies in the world, including Citigroup, Credit Suisse, HSBC, J.P. Morgan, Novartis, Pfizer, Vodafone, Cable & Wireless, Shell and BAE.

Additionally, "The acquisition of Panopticon is a transformative event for Datawatch and the industry," said Michael A. Morrison, President and CEO of Datawatch.

On the conference call Mr. Morrison stated, "I mean, I believe that this particular transaction will certainly bring Datawatch more in line with what you might see from a Tableau, in terms of applications and capabilities. So I would certainly see us on their radar, probably more frequently than you would have in the past. I would probably also say with the real-time nature of technology and our ability to work with various datasets in a high velocity manner. We'll probably see ourselves running into companies like Splunk more frequently with some of the machine data initiatives and file initiatives."

I also found this information from the press release to be interesting:

"Effective visualization of business information is in heavy demand; our research shows that 48 percent of organizations have indicated presenting data visually is an essential business analytics capability, with visual data discovery being one of the top three big data analytics needs not effectively delivered today, and that visualization is more important for businesses than just a focus on velocity or volume," said Mark Smith, CEO and Chief Research Officer, Ventana Research. "Datawatch's acquisition of Panopticon to extend the value of information optimization with analytical discovery, that maximizes the use of data and events, is what business has been demanding and the combination will bring new innovation to our industry."

Potential risks include the ability to successfully integrate this acquisition while keeping focus on running the business. The good news is the key Panopticon executives are staying on board.

Lastly, Panopticon CEO William De Geer said on the call , "in my opinion, I think, we got probably the most undervalued stock in the whole sector."

When we look at valuation:

DATA has a current price/sales of 11.9 (using current PPS of $53.20/ current years sales estimate of $258mm / 57.5m shares O/S)

SPLK has a current price/sales of 16.9 (using current PPS of $44.52/ current years sales estimate of $274mm / 103.8m shares O/S)

DWCH has a current price/sales of 4.4 (using current PPS of $17.5/ current years sales estimate of $29m for DWCH and $5mm per conference call for Panopticon = $34mm / 8.5m shares O/S which is the amount they said will be outstanding after the acquisition)

DWCH has done $0.17 of adjusted EPS for the first six months of this fiscal year. DATA and SPLK did not have EPS. If I use the current price/sales ratio range of DATA and SPLK for DWCH, then DWCH would have a price range of $47.43 - $67.46 instead of the $17.50 where it trades today. It is clear to me that DWCH is grossly undervalued when compared to peers and this acquisition should get them the attention they deserve. Lastly, DWCH has a tiny float of 2.8mm shares, so this stock could move quickly once it is noticed.

Disclosure: I am long DWCH in the low $17's. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Monday, June 17, 2013

EAC Set Up Nicely For A Short Squeeze

On June 13, 2013 , another Seeking Alpha author Richard Pearson, wrote an article on Erickson Air-Crane (EAC). Mr. Pearson disclosed he was short EAC shares. The article caused a big sell off in EAC shares and also caused short interest to rise on a stock with a 3mm shares float. I would like to address some of the points from Mr. Pearson's article.

1) "Evergreen has received a going concern letter from its auditor. It was in default on its debt. It was not even paying its accounts payable to such an extent that suppliers began withholding parts and Evergreen was unable to maintain its aircraft."

Response - Evergreen was owned by their parent Company Evergreen International Aviation (EIA). EIA owned numerous other divisions: See Page F-7 • Evergreen International Aviation, Inc. • Evergreen International Airlines, Inc. • Evergreen Aviation Ground Logistics Enterprise, Inc. • Evergreen Trade, Inc. • Evergreen Agriculture Enterprise, Inc. • Evergreen Defense and Security Services, Inc. • Evergreen Maintenance Center, Inc.; through the date of disposal (May 27, 2011)

So I post the question, was Evergreen Helicopters (EHI) performing poorly and as a result not paying their bills and had a going concern, or was the parent in trouble and needed cash so they sold EHI to EAC ? Well we already knew that EHI did approximately $200mm in revenue and approximately 25% EBITDA margins. When you look at page F-4 of the same financial statements that Mr. Pearson referenced you see that EHI did do those numbers and in addition they had $17 million in net income. But the real part of the story that was not included in Mr. Pearson's article was on page F-6 on the cash flow statement. EHI transferred $57mm of cash to what I assume to be their struggling parent !! Without that payment, EHI would have generated cash of $56mm which i would discount by $20mm for the increase in A/P. So EHI was and is very profitable and generating great free cash flow but they had to transfer cash to their parent (who sold them to EAC I'm guessing because they obviously needed the money) instead of paying their own bills.

2) "But in fact, the situation was set to get far worse for struggling Evergreen, given that over 60% of its revenues come from DOD contracts in Afghanistan. The US has already announced that the pullout from Afghanistan is set to accelerate and troop levels will be further reduced by 50% in the next year.But in fact, the situation was set to get far worse for struggling Evergreen, given that over 60% of its revenues come from DOD contracts in Afghanistan. The US has already announced that the pullout from Afghanistan is set to accelerate and troop levels will be further reduced by 50% in the next year."

Response - Mr. Pearson failed to note that EAC has already publicly responded to this question several times. Here is EAC's CEO Udo Rieder's response from the Q1 Conference call:

"So I would like to address some of the obvious questions about this portion of our revenues. First regarding sequestration, it's important to understand that the majority of the work which is for logistic supports for oversea deployments it's funded through the overseas contingency operation vehicle and is not subject to sequestration. Second approximately 65% of Evergreens total revenues are related to work that we do in Afghanistan.

We have good visibility on this work for the reminder of 2013 and we have growing expectation that the work remain brisk in 2014. I know that our business is not directly related to troop levels this include support for special operations which are likely to remain longer than most deployment and support for reconstruction work which also should persist for some years."

Additionally here is an article that states this type of work will be needed in Afghanistan for years or decades to come and is not tied to troop levels.

"The individual pay and contractor company revenues are lucrative, substantially above the civil rate in the U.S., reflecting operational costs and risks. Last year six civil helicopter companies-AAR Airlift, Canadian Helicopters, Columbia Helicopters, Construction Helicopters, Evergreen Helicopters and Vertical De Aviacion-received $417.9 million for their work in Afghanistan. This year that amount is expected to grow to $783.2 million, according to the Pentagon. A combination of new construction projects and the draw-down are keeping the rotors spinning. The new facilities are being custom built for forces anticipated to remain after next year, and they are likely to require civilian airlift support for years, if not decades, to come."

Lastly, there has been no mention of the massive increase in backlog for EAC. From page 43 of the same SEC filing:

"Our backlog as of December 31, 2012 was $178.8 million, of which $69.6 million was attributable to signed contracts and $109.2 million was attributable to anticipated exercises of customer extension options. We had total backlog of $213.8 million as of December 31, 2011, of which $106.0 million was from signed contracts and $107.8 million was from anticipated exercises of customer extension options. On a combined pro forma basis, we had approximately $894.5 million of backlog as of December 31, 2012, comprised of approximately $178.8 million, $445.7 million and $270.0 million from EAC, EHI, and Air Amazonia, respectively. Our $894.5 million of combined backlog consists of $293.7 million from signed contracts and $600.8 million from anticipated exercises of customer extension options."

Additionally, this link from a week ago shows that EHI just outbid three other Companies to win $10mm contract in Hawaii.

As far as the debt levels of the EAC combined companies post acquisition, they are in line with comps in the industry and EAC has stated they will generate $40mm free cash flow on a sustainable basis excluding one time acquisition charges this year.

3) "With respect to the distressed Evergreen acquisition, Erickson disclosed the following: - lack of experience in these business segments - lack of experience with these types of aircraft - lack of experience in these geographic regions (Middle East, South America and Africa) - NO experience with Department of Defense customers and projects"

Response - That is why you keep the key leaders from EHI on board as part of the acquisition. Mergers and Acquisitions 101 here, shocked this was used as a slam on the Company. IS EAC the first Company to make an acquisition in another geography or business than their core business ? I will not grace this point with any more of my time.

4) "The reason for the rise is that the stock benefited greatly from a strong fire season in late 2012. As a result, the company actually turned a meaningful profit in one quarter out of the past five."

Response - Yes fire fighting is seasonal so prior to the acquisitions EAC made most of their money in the quarter that fire fighting was strongest. This is often referred to as "seasonality" and is common for many companies ( again Business 101 here). Additionally, fire season is unfortunately very strong this year also.

5) ZM wants to sell all of their shares. ZM is an equity fund. Equity funds are usually in the business to invest money in early to mid stage companies, build them up to sell and make a profit and then do it again. They are typically not long term holders. Also, it is not uncommon for funds to invest in similar Companies (Like EAC and EHI) and then combine them to sell or take them public (roll up). Lastly, a shelf filing is a flexible arrangement and with this S-3 they have two years to sell the shares. With this amount of shares, I would say ZM would need to find strong institutional buyers that saw the future value in this Company.

6) If EAC were to sell 4mm new shares at some point, keep in mind that it would eliminate 8.25% interest debt if they used it to retire debt. This would be close to neutral on and EPS basis. If they used it for an acquisition, I would like to believe that it would be an accretive one. However I have updated my numbers assuming they sell 4mm new shares and compared them to industry comps:

So I will now update my numbers and price targets compared to similar companies, based on the guidance from EAC.

Bristow Group, Inc. (BRS) has a market cap of $2.3 billion + $900 million of debt less $200m cash divided by $294 million of EBITDA = 10.02 EBITDA multiple.

Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $678 million of debt less $340m cash divided by $211 million of EBITDA = 8.7 EBITDA multiple.

Air Methods Corp. (AIRM) has a market cap of $1.4 billion + $663 million of debt divided by $233 million of EBITDA = 8.9 EBITDA multiple.

PHI Inc. (PHII) has a market cap of $511 million + $379 million of debt less $49 m of cash divided by $119 million of EBITDA = 7.1 EBITDA multiple.

If I take the mid-point of the EAC 2013 pro forma guidance of $112.5 million and conservatively assume no growth in Air Amazonia so I add $12.5mm of EBITDA they expect from that acquisition we have $125mm of EBITDA:

$125 million of EBITDA X 8 - $400 million of debt + $84mm of cash (assumes they sell at $21 closing price) = $684 million divided by 17.7 million shares outstanding (added 4m new shares) = $38.64 per share.

$125 million of EBITDA X 10 - $400 million of debt + $84mm of cash (assumes they sell at $21 closing price) = $934 million divided by 17.7 million shares outstanding(added 4m new shares) = $52.77 per share.

The average EBITDA multiple of the 4 similar companies is 8.7. That would imply a valuation of $43.59 per share with 4m new shares issued.

Risk - Clearly EAC needs to execute on their business and successfully integrate these acquisitions in the process. This would enable them to pay down the debt and continue to grow the business. ZM selling their shares does not create dilution, but they need to find buyers in strong hands.

Lastly, short interest is currently 17% of the approximate 3m float, so any momentum could ignite a very strong short squeeze. The numbers clearly show EAC as undervalued, and if ZM successfully sells shares that only confirms this. The 17% is of the last measure and I would guess that shot up much higher after the short article last week.

Disclosure - I originally wrote two articles when i was long EAC from the $17-$18 range. It then hit as high as $29. I sold some shares in the $27 area and I am still long EAC.

Tuesday, May 21, 2013

Be Wise

When you have profit in a stock it is always best to take some off the table and ride the rest if you still think it has upside..........EAC i took some off in the $27's from the $17-$18 range and I am holding the rest.........BDL i took some off at $13 from the $9's and I am riding the rest.....you protect yourself from pullbacks and it becomes stress free money making !

Monday, May 20, 2013

Why BDL - Flanigan's Enterprises Inc. Shares Could Double

Three of the last stocks I have written articles about have seen significant price appreciation because they were undervalued, in my opinion:

MER Telemanagement Solutions Ltd (MTSL) went from the $2 range to the $5 range when I said it would double. (They subsequently lost a major customer for 2014 on after they had renewed for 2013.)

Ikonics Corp (IKNK) has doubled from $8 to the $16 area where it remains.

Erickson Air-Crane Incorporated (EAC) has gone from $18 to $29.25 and closed just under $27 today.

I am constantly searching for undervalued companies. I believe I have found the next stock that should be more than double the current price when you compare its numbers to the valuation of its industry.

Flanigan's Enterprises Inc. (BDL), operates a chain of full-service restaurants and package liquor stores in south Florida. The company operates restaurants under its Flanigan’s Seafood Bar and Grill service mark that provide alcoholic beverages and full food service; and package liquor stores under its Big Daddy’s Liquors service mark, which offer private label liquors, beer, and wines.

For their Fiscal Year 2012, BDL reported $0.76 EPS that included $0.10 in charges due to the one time start up costs of a new store. So the business, had an EPS run rate of $0.86 in Fiscal 2012.

For the trailing twelve months, BDL reported $0.90 EPS that included $0.28 in charges due to the one time start up costs of a new store. So the business, had an EPS run rate of $1.18 for the trailing twelve months.

For the first two quarters Fiscal Year 2013, BDL reported $0.59 EPS that included $0.18 in charges due to the one time start up costs of a new store. So the business, had an EPS run rate of $0.86 for the first two fiscal quarters of this year. This last quarter they reported $0.40 EPS.

They stated in the last 10-Q, "During the next twelve months, we expect that our restaurant food and bar sales will increase".

The restaurant sector has an average P/E ratio of 22.10. If i take the trailing twelve months of adjusted EPS of $1.18 X 22.10, that equals a share price of $26.08 versus the $11.11 where it closed today. If I conservatively assume they can grow adjusted EPS to $1.40 this year, (since they are already at about the same adjusted EPS level of all of Fiscal 2012 after the first two quarters in Fiscal 2013) then at the industry average P/E ratio that equals a share price of $30.94.

Potential risks include general economic weakness potential and higher food costs. BDL has had what seems to me to be conservative boilerplate warnings about higher food costs adversely effecting gross profit and income for the last 6 quarters that i looked at. However gross profit % was 65.54% in Fiscal 2012 versus 65.64% in Fiscal 2011. Additionally, gross profit % was 64.54% in the first six months of Fiscal 2013 versus 65.03% in the first six months of Fiscal 2012. So for all the quarterly warnings, gross profit % does not seem to move that much and should be mitigated by the expected higher sales in my opinion. Lastly, BDL has a float of approximately 600k shares. A stock with this small a float should not be chased and in my opinion is not for large positions.

It is my opinion that BDL is significantly undervalued when compared to its peer group. Applying the industry P/E ration just to the trailing twelve months adjusted EPS gets you a share price of $26.08 versus the $11.11 where it closed today. I think using trailing twelve months EPS is very conservative given the growth and expected higher sales. Combined with the fact that BDL has a tiny float of approximately 600k and outstanding shares of only 1.86 million, this stock could rapidly appreciate to a point where it is more fairly valued compared to its peers.

Monday, May 13, 2013

EAC Updates Guidance - Why Shares Should Be Valued At $40-$60

Much has happened with Erickson-Air Crane (EAC) since I posted this article on April 25th discussing why the Company's shares could double in 2013. EAC Article

The Company has rapidly closed on the acquisition debt financing, received a $100mm credit facility, and completed the largest of two acquisitions that by their own words were "transformative and would double the size of the Company".

Additionally, on last Thursday, May 9th, EAC reported record first quarter revenues and earnings. They also provided guidance on what they termed the significant accretive acquisition of EHI for fiscal 2013 both on a GAAP basis and a Pro Forma basis as if they owned them for all of 2013.

"On a pro forma basis, as if the acquisition and associated financing had occurred on January 1, 2013, the Company expects full year revenues in the range of $385 to $395 million and Adjusted EBITDA for the full year in the range of $108 to $116 million."

The Company noted that its guidance also does not yet include any effect from the planned but still pending acquisition of Air Amazonia from HRT. However on the conference call they did note that from a guaranteed contract they expect annual revenues of $50 million at an EBITDA margin of approximately 25% from Air Amazonia.

It is important to note that with both of these acquisitions, they are bringing in these numbers only using approximately 50% capacity of the aircraft, so there is significant room for upside. The CEO said on the conference call that they are excited about the additional opportunities they are seeing. So there represents upside to the numbers if EAC can win new business and keep existing customers happy.

So I will now update my numbers and price targets compared to similar companies, based on the guidance from EAC.

Bristow Group, Inc. (BRS) has a market cap of $2.3 billion + $900 million of debt divided by $294 million of EBITDA = 11.02 EBITDA multiple.

Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $678 million of debt divided by $211 million of EBITDA = 10.3 EBITDA multiple.

Air Methods Corp. (AIRM) has a market cap of $1.4 billion + $663 million of debt divided by $233 million of EBITDA = 8.9 EBITDA multiple.

PHI Inc. (PHII) has a market cap of $511 million + $379 million of debt divided by $119 million of EBITDA = 7.5 EBITDA multiple.

If I take the mid-point of the EAC 2013 pro forma guidance of $112.5 million and conservatively assume no growth in Air Amazonia so I add $12.5mm of EBITDA they expect from that acquisition we have $125mm of EBITDA:

$125 million of EBITDA X 8 - $400 million of debt = $600 million divided by $13.7 million shares outstanding = $43.80 per share.

$125 million of EBITDA X 10 - $400 million of debt = $850 million divided by $13.7 million shares outstanding = $62.04 per share.

The average EBITDA multiple of the 4 similar companies is 9.4. That would imply a valuation of $56.57 per share.

I would recommend reading the top presentation link here titled, "Erickson Evergreen Acquisition slides" to get a full grasp of the potential of this new company.

Potential risks generally include challenges in integrating the acquisitions. However on the call the Company said this is going very well at this point.

To me EAC represents a unique opportunity where a Company made two very accretive acquisitions at a great price, doubling the size of their Company. The street and the stock price have yet to factor in the new Erickson-Air Crane guidance. You can see that the numbers are clear. Once the street does the math, EAC should be a $40-60 stock based on these numbers and share count compared to the valuation of similar companies. With a float of under 3 million, this could even accelerate a move once these numbers are discovered.

This article is not investment advice.

Tuesday, April 30, 2013

Erickson Air-Crane Successful Acquisition Financing Has It Poised To Take Off

Last week I wrote an article on Erickson Air-Crane (EAC) titled:

"Why Erickson Air-Crane Could Double In 2013". READ ARTICLE

Since then EAC has secured financing for two major acquisitions that places a value on this Company of more than double the current share price. I will look at this valuation based on EV/EBITDA and P/E Ratio on EPS with the closest comps I can find:

Bristow Group, Inc. (BRS), Seacor Holdings Inc. (CKH), and Air Methods Corp. (AIRM). AIRM is mainly medical air transport services so it is the least closest comp of the three.

In March of 2013, EAC announced two acquisitions that would more than double the size of its company. These acquisitions will be immediately accretive and are expected to close in Q2 of 2013. The headlines of the press release stated, "Transformative, Accretive Acquisition of Global, Diversified Air Services Business. Acquisition Would Double the Size of the company." EAC did $180 million of revenue and $44.5 million of EBITDA on its own in 2012. It stated that had it owned both of these acquisitions in 2012, it would have done $430 million in revenue and 25% EBITDA margins or $108 million in EBITDA.

In the article that announced the acquisitions, the CEO Udo Rieder commented, "We believe that there are significant opportunities for incremental growth and efficiency embedded within the global operational platform we are assembling". These are amazing numbers on a pro forma 2012 basis and then the CEO mentions incremental growth and synergies going forward beyond 2012.

The company had approximately 9.7 million shares outstanding and a float of 2.8 million shares prior to this these transactions. The company is only diluting the outstanding shares by 4 million preferred shares equivalent with these transactions, leaving them with approximately 13.7 million fully diluted shares and a float under 3 million. The rest of the financing of these acquisitions is coming from secured bank debt the company raised last week and does not dilute the shares outstanding.

The forward numbers are astounding when you compare to similar companies in the air services segment:

PE Ratio

Bristow Group, Inc. (BRS) has a current PE of 16.4. The stock price is $62.51 and the current year EPS estimate is $3.81

Seacor Holdings Inc. (CKH) has a current PE of 16.6. The stock price is $72.91 and the current year EPS estimate is $4.39

Air Methods Corp. (AIRM) (which is not a direct comp because they do hospital air services) has a current PE of 16.6. The stock price is $37.14 and the current year EPS estimate is $2.24.

EAC as a standalone did $1.54 EPS last year in FY 2012 (more than doubling their original guidance). These two acquisitions would more than double the Company. EAC stand alone EBITDA was $44mm and it would have been approximately $108mm on a pro forma basis with these two acquisitions in 2012. It is clear that with the higher margin business EAC EPS would have been approximately $3 per share in FY 2012. That is in between the $37 stock AIRM $2.24 EPS estimate and not far from the $62.51 stock BRS $3.81 EPS estimate. The middle of those two stock prices is $49.76.

If I apply the 16.5 P/E ration of the comps to $3 EPS I get an EAC share price of $49.50.

EV/EBITDA

Bristow Group, Inc. (BRS) has a market cap of $2.2 billion + $900 million of debt divided by $294 million of EBITDA = 10.65 EBITDA multiple.

Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $967 million of debt divided by $235 million of EBITDA = 10.5 EBITDA multiple.

Air Methods Corp. (AIRM) (which is not a direct comp because they do hospital air services) has a market cap of $1.4 billion + $648 million of debt divided by $263 million of EBITDA = 8 EBITDA multiple.

If I take EAC 2012 pro forma numbers:

$108 million of EBITDA X 8 - $400m of Debt = $464 million divided by $13.7 million shares outstanding = $33.87 per share.

$108 million of EBITDA X 10 - $400m of Debt = $680 million divided by $13.7 million shares outstanding = $49.64 per share.

Someone told me they read an article yesterday where someone modeled an EV/EBITDA for EAC of $22 going forward. Well to back in to that number you would have to take EBITDA down to $87mm when management said it was approximately $108mm in 2012 and spoke of growth going forward. When you look at the facts and comps, EAC may be the best value that has yet to be discovered in the market in my opinion.

Keep in mind this is based on 2012 Pro Forma numbers. If you factor in the fact that the CEO said he sees incremental growth and efficiencies (higher EBITDA margin) potential going forward beyond 2012, you can see why EAC is grossly undervalued and as I stated in my last article, could more than double in 2103 once the street realizes these numbers. Disclosure: I am long EAC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Thursday, April 25, 2013

Why EAC Should Double In 2013

Erickson Air-Crane Incorporated (EAC) manufactures and operates Erickson S-64 Aircrane (S-64) heavy-lift helicopters. The company operates through two segments, Aerial Services and Aircraft Manufacturing and Maintenance, Repair, and Overhaul (Manufacturing/MRO). The Aerial Services segment offers a range of heavy-lift helicopter services using its worldwide fleet, including firefighting, timber harvesting, and infrastructure construction and related crewing services for government and commercial customers. The Manufacturing/MRO segment manufactures air cranes from existing airframes, produces components, and provides customers with MRO services. Erickson Air-Crane Incorporated owns a fleet of 17 S-64s. The company was founded in 1971 and is headquartered in Portland, Oregon.

The Company had an IPO in APril 2002 at $8 per share when their EPS guidance for the fiscal year 2012 was $0.72-$0.82. Actual Full Year 2012 EPS of $1.56 Doubled Initial Guidance of $0.72-$0.82 and the stock rose as high as $14.

Then in March of 2013, EAC announced two acquisitions that would more than double the size of their Company. These acquisitions will be immediately accretive and are expected to close in Q2 of 2013. The headlines of the press release stated, "Transformative, Accretive Acquisition of Global, Diversified Air Services Business. Acquisition Would Double the Size of the Company." EAC did $180 million of revenue and $44.5 million of EBITDA on their own in 2012. They stated that had they owned both of these acquisitions in 2012 they would have done $430 million in revenue and 25% EBITDA margins or $108 million in EBITDA.

In the article that announced the acquisitions, the CEO Udo Rieder commented, "We believe that there are significant opportunities for incremental growth and efficiency embedded within the global operational platform we are assembling". These are amazing numbers on a pro forma 2012 basis and then the CEO mentions incremental growth and synergies.

The Company had approximately 9.7 million shares outstanding and a float of 2.8 million shares prior to this these transactions. The Company is only diluting the outstanding shares by 4 million preferred shares equivalent with these transactions, leaving them with approximately 13.7 million fully diluted shares and a float under 3 million. The rest of the financing of these acquisitions is coming from secured bank debt that the Company is raising this week and does not dilute the shares outstanding.

The forward numbers are astounding when you compare to similar companies in the air services segment:

Bristow Group, Inc. (BRS) has a market cap of $2.2 billion + $900 million of debt divided by $294 million of EBITDA = 10.65 EBITDA multiple.

Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $967 million of debt divided by $235 million of EBITDA = 10.5 EBITDA multiple.

Air Methods Corp. (AIRM) (which is not a direct comp because they do hospital air services) has a market cap of $1.4 billion + $648 million of debt divided by $263 million of EBITDA = 8 EBITDA multiple.

If I take EAC 2012 pro forma numbers:

$108 million of EBITDA X 8 - $400mm of debt = $464 million divided by $13.7 million shares outstanding = $33.87 per share.

$108 million of EBITDA X 10 - $400mm of debt = $680 million divided by $13.7 million shares outstanding = $49.64 per share.

Then if you factor in the fact that the CEO said he sees incremental growth and efficiencies (higher EBITDA margin) potential in 2013, you can see why EAC is grossly undervalued and could more than double in 2103 once the street realizes these numbers.

Additionally, prior to these acquisitions, EAC had a very seasonal business that relied on the third quarter fire fighting business to carry the year. These acquisitions will spread out the seasonality and greatly diversify EAC into oil and gas, construction, and government transport along with the traditionally strong fire fighting business. They are the leader in fighting fires from the sky. I would recommend reading the top presentation link here titled, "Erickson Evergreen Acquisition slides" Link To Presentation to get a full grasp of the potential of this new Company.

Potential risks generally include delays in acquisition. However the ability to raise the debt this week would mitigate a timing delay in my opinion.

There is one analyst that has a price target of $24 before the acquisitions are factored in yet as they have not closed. That was before the Company doubled in growth with these acquisitions that instantly add to earnings. You can see that the numbers are clear. Once the street does the math EAC could be a $35-$50 stock based on these numbers. With a float of under $3 million, this could even accelerate a move once this is discovered.

Disclosure: I am long EAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Monday, April 15, 2013

Why I think EAC can go to $30-$40 This Year

Please watch my video that I did for my subscribers to see why I think EAC can go to $30-$40 this year.

See My Video On EAC That I did for my subscribers !!!

Subscribe to my alerts/research Service!!!!

Updated the debt on the below chart but the thesis remains the same. As far as EPS , I think EAC can do $2.50-$3.00+ EPS on a pro forma run rate with these 2 new acquisitions. AIRM has a P/E of almost 20.

Wednesday, March 20, 2013

MTSL Dip Is A Buying Opportunity

MER Telemanagement Solutions Ltd. (NASDAQ Capital Market: MTSL), a global provider of Mobile Virtual Network Enabler (MVNE), Mobile Money and telecommunications expense management (TEM) solutions and services, yesterday announced its financial results for the fourth quarter and the year ended December 31, 2012.

For the quarter MTSL did $0.20 EPS for the quarter. This represents a run rate of $0.80 EPS on an annualized basis. The Company has grown operating income 410% in 2012 over 2011.

The also announced that their largest customer will not renew in 2014. The market, in my opinion, greatly over-reacted to this fact. While this represents a material amount of revenue at approximately 25%, there are several mitigating factors. If MTSL were not to grow revenues at all in 2013, they would have an EPS run rate of $0.80. If nothing changed then in 2014 they would have an EPS run rate of $0.60. However they have told us in the press release that they are diligently working to take advantage of new opportunities and sign new contracts. MTSL has all of 2013 to replace the lost revenue from this contract.

They are entering into new growth areas like Mobile banking. They are the leader in servicing the growing mobile virtual network industry. This is a cloud based software company that provides ROI to the users of their software. All of these areas typcially generate P/E's of 10+.

Two similar companies are Tangoe Inc. (TNGO) and Veramark Technologies Inc. (VERA). VERA just reported $0.07 EPS for the year and trades at a 10 PE. TNGO will do approxiamtely $0.70 EPS for the year and trades at a PE of 17.

So at a minimum, if you took an unrealistic conservative approach and did not think MTSL will grow anymore, than at a 10 PE on the $0.60 2014 EPS this should be a $6 stock. As MTSL signs new business and replaces the lost revenue, they will grow EPS back to the $0.80+ range and deserve an even higher valuation. I believe this stock will bounce back to the $4-$6 range as these facts are realized and short sellers cover.

The markets over-reaction to the MTSL announcement presents an opportunity to participate in the rebound once these numbers are realized and as MTSL coninues to sign new contracts.

Monday, March 11, 2013

Why Ikonics IKNX Belongs In The 3D Group

Stocks in the 3d printing and manufacturing sector have been some of the strongest stocks of the last 12 monhts. This list includes 3d Systems (DDD), Stratasys (SSYS), and Proto Labs (PRLB).

Ikonics (IKNX) is a Company that belongs in this group because of their unique and as they call it "revolutionary" Digital Texturing and Micro-Machining technologies. Rapid prototyping with Digital Texturing allows for the direct transfer of a image onto a part or work piece to create an actual prototype of a textured item. 3-D texture with domed edges and actual prototypical look, shape, feel are easily accomplished.See website

Digital Texturing IS inherently printing in 3d. This is an excerpt from Stratasys/Objet discussion of digital texture printing:Read Article

Direct Texturing (DT) is the manufacturing process that produces forms, prototypes and series-production parts with defined texturing or "scarred" surfaces (e.g. car dashboards and other leather-look parts). Molds used for embossing can be manufactured with a textured surface using DT, thereby reducing the number of production steps and eliminating the need for cylinders and silicone molds.'

Compare that with the video where Ikonics discusses their revolutionary technology. Video.

In February of 2012 Ikonics and ExactFlat partnered to apply decorative textures to 3d Molds. "This partnership and reseller agreement will allow IKONICS to provide advanced features that drive meaningful competitive advantage for our customers," said Karl Shaw, Director of New Technologies at IKONICS. "The ability to place images onto 3D surfaces with a higher level of accuracy, bend patterns along contours, align features with greater precision and extend imaging capabilities to all product lines at considerably lower cost will redefine what was possible in 3D decorative textures."Link text

Digital texturing is a way of printing very fine, repeatable surface textures on any object in 3d. This is what IKNX proprietary DTXjet inkjet printer does. IKNX owns the patents for the process. Therefore it is my opinion that any industry interested in printing surfaces of objects in 3d must consider IKNX tech for the job.

ProtoLabs Inc. has been one of the strongest stocks in the 3d group with a current P/E of 50. They are into rapid prototyping. Ikonics is also in the business of rapid prototyping. Link text.

IKNX recently posted earnings doubling net income for the same quarter last year of $0.14 v $0.07. In the earnings release the CEO briefly mentions new business with Boeing and Airbus:Link text

"In addition to ongoing business related to the Boeing 747-8, we have received a blanket order associated with the Airbus A350, which we expect to grow as the A350 is placed into production. We also have orders beginning early in 2013 for acoustic liners from a major jet engine manufacturer; I anticipate that this product line will grow during the year," Bill Ulland, IKONICS CEO said.

"Consequently, we are expanding our manufacturing capability, adding both equipment and people. I believe that these exciting developments not only portend a profitable business for Ikonics but also are a validation of our unique technology by a very sophisticated industry." Bill Ulland, IKONICS CEO said.

I believe Ikonics will soon be recognized as a key Company with patented technologies that will go hand in hand with the 3d Printing group and will eventually receive a much higher valuation. That group enjoy P/E ratios of 30-50+. If IKNX is operating at a $.56 EPS run rate, and does not account for growth that the latest press release mentions, then I believe this could eventually be a $20-$50 stock.

IKNX has only 2 million shares outstanding and a float of 900,000.

Potential risks - As with any small cap technology company, potential risks include delays in orders and rolling out of technology. A stock with this small a float should not be chased and in my opinion is not for large positions.

Disclosure: I am long IKNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Wednesday, January 9, 2013

PRCP - Why Perceptron May Be The Next 3d Tech Stock To Triple

3d Printer stocks, 3D Systemc Corp (DDD), and Stratosys (SSYS), have been some of the highest flying stocks of 2012. They have more than tripled and have future P/E ratios of over 40.

Anything closely associated with 3d technology has been getting attention, with even Organovo Holdings (ONVO), on the pink sheets, making a strong move this week.

It is not surprising as 3d technology is truly amazing and stands to revolutionize manufacturing in the way the internet revolutionized the digital information age. However, it is not just 3d printing that will revolutionize manufacturing. Enter the reason for this article.

I believe there is one overlooked stock that has created in their own words a "breakthrough technology" using 3d Metrology. Perceptron (PRCP), has developed the Helix non-contact metrology system with Intelligent Illumination (TM). The visionary breakthrough (no pun intended) is a world first in 3D metrology sensor technology. Mr. Blood illuminated further with the following advantages of this new development; choice of laser line number, density and orientation, 3D feature extraction and the creation of 3D point clouds. The 3D point cloud looks something like a radar-generated "weather map". This advance accelerates the evolution of production scalability from launch to ramp-up to full-scale manufacturing.

Management has developed this technology for various industries that they are just beginning to develop. As quoted in this article (link below), the once undreamed of Helix non-contact metrology technology is poised to become the new engineering metrology standard.

PRCP has a book value of $6.07 and closed today at $7.03. They reported strong growth in the first quarter and said they will have growth the rest of the year. They paid a $0.25 dividend this year. They have over $3 per share in cash, or approximately $26 million dollars and no debt. One analyst has them doing $0.44 EPS next year.

PRCP is healthy, profitable, and growing. They are in the hottest technology space of 3d technology, and about to roll out (in their own words) a breakthrough technology across many industries. This may be the most undiscovered gem I have seen in a long time. This reminds me of Uni-Pixel Inc (UNXL), another company with unique technology, that once discovered went from the current $7 range where PRCP is now, to just shy of $20. If i take the $0.45 estimate of PRCP and apply the 40+ P/E of the other 3d tech stocks DDD and SSYS, I get a share price for PRCP of $18. This may be one of the more exciting stocks to watch in early 2013. PRCP has approximately only 8.5mm shares outstanding and a float of only approximately 8 million shares.

Disclosure: I am long PRCP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I am long at approximately $6.60 average.

Quoted Articles about PRCP :

Article 1

Company Website

PRCP Last Press Release

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