It's been a banner year for CalAmp (CAMP +0.00%) shareholders. With its stock up 38% and coming off a sound, if not spectacular, fiscal first quarter, CalAmp is rolling. And with fiscal second-quarter results on deck -- CalAmp CEO Michael Burdiek and team are scheduled to share financials Sept. 28 -- most are expecting another solid quarter.
Industrial giant GE's (GE 0.71%) 2017 has been the polar opposite of CalAmp's. After reporting what was widely viewed as a disappointing second quarter, GE stock is down 20% year to date. GE's poor performance of late would seem to indicate CalAmp is hands-down the better buy, but don't be too hasty: There's something to be said about value and a strong dividend, both of which apply to GE.
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The case for GE
Last quarter's $29.6 billion in revenue was a 12% drop compared to a year ago, and its $0.13 earnings per share (EPS) was a disappointing 57% drop from 2016's $0.30 a share. However, both GE's top and bottom lines did beat pundit's expectations and also included divestitures of business lines, including its appliances unit, so comparables weren't cut-and-dried.
What really hit GE's stock hard was the 67% drop in operating cash flow from $10.8 billion in 2016 to $3.6 billion this year, a metric many analysts pointed to as a barometer of its financial performance. But cash flow was also negatively impacted by divestitures, and GE has guided for an improvement in this key area for the balance of the year.
The recent change with new CEO John Flannery taking the reins on Aug. 1 didn't help investors' confidence, or lack thereof, because the change raises questions that cause concern. But before investors start running for the hills, a look at the performance of GE's top three divisions paints a slightly different picture than the negative one so prominent today.
GE's power division, its largest as measured by revenue, increased 5% last quarter to $7 billion. Aviation's $6.5 billion was flat compared to a year ago, and healthcare sales rose 4% to $4.7 billion. Looking ahead, orders are up 6% to $28.3 billion, and GE's backlog grew 3% to $326.8 billion. It's safe to say with $84 billion of cash on the balance sheet, GE's stellar 3.8% dividend yield will continue.
The case for CalAmp
Like GE, CalAmp's last quarter included a divestiture that skewed its numbers. The $88.1 million in sales was a 3% drop year over year, but excluding the now defunct satellite business revenue, rose 6% compared to last year's adjusted $82.7 million. CalAmp's bottom line was also affected by a one-time "hit."
The negative $0.08 a share was slightly worse than the $0.07 EPS loss a year ago, but it included a $0.11 per-share charge for "damages associated with the Omega patent infringement judgment." Though Omega is no longer in business, CalAmp was hit with an $8.9 million fine last year and had warned investors of the pending charge.
CalAmp's cost of revenue dropped 10% to $50.64 million, and operating expenses rose a modest 5% to $38.77 million. The result was CalAmp's gross margin jumping from 38.2% to a record-breaking 42.5%, a tell-tale sign of improving efficiencies.
Somewhat disconcerting is CalAmp's staggering debt load of $148.64 million considering it's sitting on just $108.7 million in cash. That said, CalAmp's efforts to boost recurring income via its software and subscription sales grew to $16.1 million last quarter, up 6% sequentially, and its all-important MRM telematics revenue jumped 17%.
And the better buy is...
Though GE's 3.8% dividend and beaten-down stock price may be tempting to value and income investors, too many questions remain with its restructuring and new CEO. CalAmp is a pure growth play to be sure, but it's all-in on the IoT, a market most everyone recognizes is exploding -- and with its streamlined business and legal troubles in the rearview mirror, it gets the nod as the better buy.
