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From the Survey: Analogic Corporation
Analogic Corporation (ALOG) was founded in 1967 by Bernard Gordon. It is a high-technology, signal- and image-processing company that provides products and services to original equipment manufacturers (OEMs) and end users worldwide. A large number of well-known medical imaging companies incorporate Analogic’s imaging subsystems into their products, which are then used to detect and treat diseases in most major healthcare facilities around the world. What’s more, the company’s state-of-the-art airport security imaging systems have been installed worldwide, thereby making air travel considerably safer in the post-9/11 world.
In addition, Analogic also sells its ultrasound products directly to clinical end-user markets through its direct worldwide sales force under the brand name of BK Medical, a wholly owned subsidiary. BK Medical is recognized as a global leader in the development of ultrasound systems designed for anesthesia, interventional radiology, surgery, and the investigation of urological disorders.
Analogic’s top and bottom lines were battered by the 2007-2009 recession, with the downturn in the worldwide economy resulting in many of its end-users tightening their purse strings. However, the modest and uneven economic rebound we have seen over the last 18 months or so has certainly been a blessing to the company’s top line over the last two fiscal years (year ends July 31st), as it rekindled demand for ALOG’s products. What’s more, the company is dedicated to R&D and always seems to have a rather full new-product pipeline, which certainly helped bolster its fortunes.
Separately, when times started to get tough, management rolled out a significant restructuring aimed at lowering Analogic’s cost structure, which included boosting ALOG’s efficiency, optimizing resources, enhancing companywide communications and paring headcount. Subsequently, in fiscal 2009, the company pared its workforce by an additional 6% worldwide. And now that the company has made it through the former malaise, these actions seem to be paying off in spades, with management dedicated to achieving double-digit operating margins by fiscal 2012, aided by the recent consolidation of manufacturing operations, improving planning and supply chain management, an increased use of automation, and design-driven product cost reductions.
In late May, Analogic’s high-speed Explosives Detection System (EDS) received Transportation Security Administration (TSA) certification for checked-baggage screening. This new certification comes on the heels of a positive review in March by the European Standard 3 enhanced detection requirements. The product is marketed and distributed by L-3 Security and Detection Systems as the eXaminer XLB. The high-speed eXaminer XLB, which can process over 1,200 bags an hours, uses computed tomography (CT) technology for explosives detection. TSA approval is more than likely to translate into increased demand for the item, as airport security remains a top priority both here and abroad. However, it is important to note that revenues are likely to remain variable, due to the TSA’s deployment of a new procurement process. Moreover, the company’s growth prospects through the end of this decade seem to depend on new product development, as demand for the aforementioned security system appears to be relatively finite.
Finally, the company’s balance sheet is in good shape. Indeed, Analogic finished off fiscal 2011 with roughly $170 million in cash and no long-term debt. As a result, Analogic is well positioned to fund selective acquisitions, boost its R&D spending, and/or bolster shareholder value through additional share-repurchase programs. Indeed, during the first nine months of the recently completed year, the company bought back 272,789 shares of its outstanding common stock for about $13.8 million, leaving approximately $16.2 million available for additional repurchases, which augurs well for earnings growth over the long term.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.