For all that its name sounds like a (slumber-inducing) title for a college term paper, American Science & Engineering (AMEX:ASEI) has been turning in exciting numbers and wowing the critics. It's been nearly two years since the maker of backscatter X-ray machines last reported earnings anywhere near as low as those expected by Wall Street analysts. Tomorrow morning, the company will try to extend its streak of "earnings beats" to a lucky No. 7 when reporting on fiscal Q4 and full-year 2006.
What analysts say:
- Buy, sell, or waffle? Seven is also the number of analysts following the company. Four of them rate the stock a buy, one a hold, and two a sell.
- Revenues. Analysts will be looking for 40% sales growth tomorrow, to $37.8 million.
- Earnings. Profits are predicted to rocket 55%, to $0.76 per share.
What management says:
AS&E's CEO, Anthony Fabiano, is a man of few words -- at least when it comes to earnings announcements. The last one, released in February and covering fiscal Q3 2006, contained a mere three paragraphs of prose. (Unfortunately, it also contained only two of the three essential financial documents, failing to include a cash flow statement.)
In describing a quarter in which the company boosted sales by 64% against the year-ago quarter, and brought its year-to-date revenue improvement up to a nice round 100%, Fabiano emphasized the need to invest in the company's future. In order to secure its technological lead over rivals, AS&E increased its R&D spending by 88% in the third quarter. This investment appears to be paying off, since the company just booked an initial order for its OmniView Gantry Cargo Inspection System -- a new product that should prove invaluable to security screeners at shipping ports.
What management does:
As fast as sales are growing, margins have expanded at an even more frenetic pace. Rolling gross margins have nearly doubled over the last 18 months. Meanwhile, as the company scales its operations, rolling operating margins are up more than 350%, and bottom-line profitability is up more than 13 times.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
28.9 |
31.7 |
34.5 |
37.4 |
42.8 |
45.8 |
|
Op. |
6.2 |
10.2 |
11.9 |
17 |
24.6 |
28.3 |
|
Net |
1.6 |
4.3 |
12.7 |
17.6 |
19.8 |
22.9 |
One Fool says:
Best of all, AS&E is doing a superb job of managing its working capital -- no mean feat in a period of such runaway growth. Looking at the past six months' results for example, sales are up 96%, but accounts receivable have grown only 82%. That's surprising, considering that the company's main customer is the U.S. government, a notoriously slow payer; this suggests the company's products are so urgently needed that there's little quibbling over the invoices going on.
And the story gets even better. Inventories, far from rising in tandem with or excess of sales, have actually declined 16% on average during the same six-month period. AS&E is in the enviable position of having a product so hot it that it's "flying off the shelves." I'm not surprised it's able to command such powerful margins, and I have little doubt it will continue to do so in the future.
Competitors:
- General Electric (NYSE:GE)
- L-3 Communications (NYSE:LLL)
- OSI Systems (NASDAQ:OSIS)
American Science & Engineering is a Motley Fool Rule Breakers pick. Seeking more firms that reap gains from high tech? Try Rule Breakers free for 30 days.
Fool contributor Rich Smith does not own shares of any company named above.
