Foolish Forecast: Inspecting AS&E

Views you can use to get clues on tomorrow's news.

Rich Smith
Rich Smith
May 18, 2007 at 12:00AM
Other

As most of the corporate world continues to report the results of its first quarter of fiscal 2007, backscatter X-ray specialist American Science & Engineering (NASDAQ:ASEI) is all set to reveal its end-of-year news. Its Q4 and full-year 2007 results are due out on Monday.

What analysts say:

  • Buy, sell, or waffle? Seven analysts examine AS&E. The buy-hold-sell breakdown: 4-2-1.
  • Revenues. On average, they're looking for 16% quarterly sales growth, to $47.2 million.
  • Earnings. Profits are predicted to leap 57% to $0.80 per share.

What management says:
In a low-profile SEC filing dating from February, management placed a hint that it may be thinking of selling out. (General Electric (NYSE:GE)? Are you listening?) Two sentences were all it took to announce that a "change in control" of the company could double the volume of management's golden parachutes from "one times base salary plus annual target bonus to two times base salary plus target bonus."

Perhaps coincidentally (and perhaps not), this announcement followed the fourth straight quarter in which AS&E badly missed analysts' consensus earnings estimates. Although CEO Anthony Fabiano boasted of the "second highest revenue in Company history for the third quarter fiscal year 2007," it's hard to ignore that the company has managed to underperform the Street's expectations by about 28% over the last year.

What management does:
Has AS&E passed its peak? The table below sure seems to suggest it. For two straight quarters, we've watched the company's margins tumble at each of the rolling gross, operating, and net levels.

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

42.8%

45.8%

47.8%

49.1%

48.5%

48.0%

Operating

24.8%

28.4%

30.7%

31.2%

28.9%

28.6%

Net

19.8%

22.9%

18.2%

18.2%

18.1%

15.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
In the March 2007 update on portfolio recommendations from Motley Fool Rule Breakers, our crack team of analysts deconstructed AS&E's third-quarter performance, as compared to analyst expectations. AS&E's performance appeared to be:

... well below what analysts were looking for, although it's not clear if the consensus number took into account the $2.3 million ($0.21 per share) in stock option expenses. As we've noted before, however, analysts are no better at predicting this company's results than a chimp with a dart ... it seems the only thing you can count on with AS&E is that it won't hit the consensus target.

Sounds pretty grim, huh? But I don't think our RB team meant to denigrate the firm. You see, once upon a time, reporting earnings nowhere near analyst expectations was a good thing for AS&E. In the four quarters preceding the four already discussed, the firm zapped Wall Street's estimates with a blast of highly charged electrons, exceeding expectations by 65%. My, how times have changed. Let's just hope they change back come Monday.

For a glimpse of a few of our recommendations that are continuing to astound the critics -- in a good way -- remember to claim your free 30-day trial of Rule Breakers at the door.


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Fool contributor Rich Smith owns shares of AS&E. The Fool has a disclosure policy.