Are you interested in a small-cap stock that has been growing earnings at a 17.8% annual clip for the last five years? Looking for an interesting superconductor investment that the market ignores? If so, check out IntermagneticsGeneral's
Overall, sales increased 37.8% over the year-ago quarter, on track to exceed the company's prior guidance of 15% sales growth for the entire fiscal year (which ends May 2006). Diluted earnings per share from continuing operations increased 31.3% (factoring out the effects of an acquisition), similarly surpassing guidance for full-year growth in excess of 20%. The robust results are a bit of a surprise; gross margins were expected to fall in the first half of the fiscal year because of a new MRI product line.
The Magnetic Resonance Imaging unit (39.5% of sales; 59.4% of profits) provides superconducting magnets and related devices for MRI systems. Sales for the quarter were up 16.6%, helped by the newly introduced product line.
The Medical Devices subsidiary (56.1% of sales; 40.6% of operating profits) was "reformed" over the last two fiscal years when the company sold its instrument business and acquired two medical-device operations. Now focused on diagnostic imaging and patient-monitoring systems, the division's first-quarter sales were up a whopping 54.1% thanks to the newly acquired units and stronger-than-expected OEM demand. The small 6.4% increase in operating income probably reflects the continued costs of integrating the acquired businesses.
The Energy Technology segment (4.3% of sales; producing losses) is working with high-temperature superconductors (HTS) to find long-term solutions for the reliable transmission and distribution of electrical power. This development-stage operation is years away from meaningful revenue.
There's an interesting technology play at work here. The company's MRI business uses low-temperature superconductors (LTS) in its products. Developing high-temperature superconductors is a logical extension of a core competency, although the target markets -- energy transmission and defense -- would be new.
Contrast that to American Superconductor
Let's pause for a reality check here. IBM
Nonetheless, Intermagnetics General is a solidly profitable company that is expected to grow earnings by 18% annually for the next five years. The stock sells for a less-than-pricey 21.1 times trailing earnings; it appears that the market is valuing the HTS opportunity at close to zero. If the company commercializes HTS products, its growth potential will greatly exceed today's core operations. That sounds like an interesting opportunity.
Further superconductive Foolishness:
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