Foolish Forecast: Radyne Rings In

Tiny telecom-equipment maker Radyne (NASDAQ:RADN) is scheduled to report Q1 2006 earnings report on Monday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

• Buy, sell, or waffle? Only two analysts follow tiny Radyne. (That's a plus in our book -- a "gem" can't be "hidden" if everyone is watching it.) Both analysts rate the stock a buy.
• Revenues. Thanks to its acquisition of Xicom last year, Radyne is expected to experience another leap in quarterly sales. This quarter, the target is a 90% increase to $26.1 million.
• Earnings. Profits aren't expected to show the same growth, but analysts are still projecting a modest 12% increase from last year, to $0.09 per share.

What management says:
Last quarter, as predicted, Radyne blew right past analyst estimates for both sales and earnings. Again. CEO Bob Fitting stated the glaringly, and pleasantly, obvious when he termed 2005 "the best year ever for Radyne." Sales for the year grew both as a result of the Xicom merger and also showed organic strength in the company's pre-merger satellite and broadcast equipment products.

And to put some icing on that cake, Fitting opined that "Signs point to even better performance in 2006." Nice.

What management does:
Of course, it hasn't been all cake and ice cream at Radyne. Rolling gross margins are down 670 basis points, and the company's net margin has been more than halved over the past 18 months.

One Fool says:
Radyne's sales have rocketed 134% over the past six months in comparison with the previous year's numbers. Unfortunately, these sales are bringing with them significantly decreased margins, as the cost of goods sold rose 201%. The good news is that the higher sales are not driving operating costs much higher at all. Total operating expenses at Radyne over this period rose only 67%.

What's all of this mean? Radyne is now selling fewer profitable goods, but much more of them, and it isn't incurring a lot of costs for marketing, R&D, or salaries in driving the additional sales.

On the balance sheet, things look similarly good. Inventories for the past six months have risen by about 114%, and accounts receivable by about 115% -- so both are rising more slowly than sales. That suggests high quality in earnings growth.

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Fool contributorRich Smithdoes not own shares of any company named above.