Cantel Medical (CMN) specializes in disinfection equipment for dental offices and medical centers. Its products range from face masks to complex endoscope sterilization machines. Today it closed at $26.31, up $0.40. Cantel's 52 week high was $28.97 on September 25th. Is Cantel's run up over? Should it be bought or held for its long-run potential?
Cantel has grown both organically and through acquisitions. Acquisitions are often not a plus for investors. In Cantel's case, however, the acquisitions have gone very well. The acquired companies were bought as reasonable prices. Cantel has been able to increase margins at the acquired companies, partly by using its existing sales forces to ramp sales. The process has left Cantel with some debt, but it is at low interest rates and there is a clear path to paying it off.
In fiscal Q4 ending July 31st Cantel Medical revenue was $98.7 million, up 2% sequentially from $97.2 million and up 15% from $86.0 million year-earlier. Net income was $9.6 million, up 17% sequentially from $8.2 million and up 104% from $4.7 million year-earlier. EPS (earnings per share) were $0.35, up 17% sequentially from $0.30 and up 94% from $0.18 year-earlier.
Last Friday a new acquisition was announced. It resembles earlier acquisitions: small enough to digest easily, complementing an existing business, and with a very fair price to earnings ratio. SPSmedical Supply Corporation does sterility assurance and monitoring, so it fits well with Cantel's Crosstex division. Cantel paid $32 million. EBITDA for the last year was $4.3 million, so it cost less than 8 time EBITDA. There will be some acquisition costs in the December quarter, including $3.5 million capital expense to buy the facility SPSmedical works out of. But in the March 2013 quarter it should add roughly $1 million to profits.
Cantel ended fiscal Q4 with $30 million in cash and $60 million in debt. After this transaction net debt should be around $65.5 million. Since cash flow from operations was $17.7 million in the quarter and should continue to rise in 2013, net debt should be approaching zero in 2014 unless more acquisitions are made or there is significant capital expense during 2013.
I have been watching Cantel Medical since early 2010. I was originally attracted to the infection control story, which I knew had become a serious problem in hospitals. Infection control spending has ramped considerably these last few years, but much remains to be done. Cantel has competitors in each of its areas of expertise, but it also tends to be a leader. It is a remarkably well run business with a frugal management that seems to be committed to working to build long-term value for shareholders.
Cantel is not exactly a cheap stock, with a P/E of 23.1 at today's price. The P/E has been justified by the quality of management and earnings, but there is no guarantee it will remain at the current level. Cantel pays a small dividend, with a yield well under 1%, which is fine for me as I am looking for long-term returns and feel cash should be used to pay off debt and to expand further.
Note that Cantel was affected by the recession, and its revenues are not immune to macroeconomic factors. It also has had some spikes in revenue during infectious disease scares, so it can be a bit lumpy from quarter to quarter and, to a lesser extent, year to year.
Cantel is suitable to conservative long-term investors at today's price.
Disclaimer: I own Cantel Medical. I will not make trades in CMN for one week following publication of this article.
Keep diversified!
Showing posts with label EBITDA. Show all posts
Showing posts with label EBITDA. Show all posts
Monday, November 5, 2012
Friday, October 29, 2010
Akamai Q3 2010 Analyst Conference Call
Akamai (AKAM), which provides accelerated Internet services to enterprises, showed some of its promise in Q3. Akamai's trailing P/E is still pretty pricy by my standards, but then I bought AKAM back during the recession when its PE was much more reasonable.
GAAP Revenue was $253.6 million, up 3% sequentially from $245.3 million and up 21% from $206.5 million in the year-earlier quarter. GAAP Net income was $39.7 million, up 4% sequentially from $38.1 million and up 21% from $32.7 million year-earlier. GAAP EPS (earnings per share) were $0.21, up 5% sequentially from $0.20 and up 17% from $0.18 year-earlier.
Using GAAP numbers, Akamai's PE as I write (stock price $51.60) is 63, using annualized Q3 earnings. NASDAQ is listing non-GAAP PE as 35 trailing (last 4 quarters) or 32 forward looking (predicted next 4 quarters). That is pricey compared to semiconductor growth stocks like Marvell (MRVL - trailing PE 13) and Microchip (MCHP - trailing PE 20), which I also own.
I like GAAP numbers for conservative investing, but it is true that for Akamai you might want to look at Q3 cash from operations of $118 million or EBITDA at $114 million.
Why the excitement over Akamai? In theory it could ramp profits faster than revenues, and with Internet usage continuing to vastly outpace economic growth, profits could grow rapidly. However, the promise of rapid profit growth eluded Akamai in 2009 and in 2010 until Q3.
Negative opinions of Akamai mainly come from over regard for competitors. For as long as I can remember, competitors were going to take significant business from Akamai in the next couple of years. A couple of years pass, and if anything Akamai has gained market share. Akamai seems to know how to maintain its market advantage without blowing too much money on R&D.
I would not buy Akamai at this price, but then I already own a reasonable amount. There is certainly an argument that this price will look cheap in a couple of years, maybe even by mid 2011. For a much more detailed look, see my Akamai Analyst Call Q3 2010 summary.
See also www.akamai.com
GAAP Revenue was $253.6 million, up 3% sequentially from $245.3 million and up 21% from $206.5 million in the year-earlier quarter. GAAP Net income was $39.7 million, up 4% sequentially from $38.1 million and up 21% from $32.7 million year-earlier. GAAP EPS (earnings per share) were $0.21, up 5% sequentially from $0.20 and up 17% from $0.18 year-earlier.
Using GAAP numbers, Akamai's PE as I write (stock price $51.60) is 63, using annualized Q3 earnings. NASDAQ is listing non-GAAP PE as 35 trailing (last 4 quarters) or 32 forward looking (predicted next 4 quarters). That is pricey compared to semiconductor growth stocks like Marvell (MRVL - trailing PE 13) and Microchip (MCHP - trailing PE 20), which I also own.
I like GAAP numbers for conservative investing, but it is true that for Akamai you might want to look at Q3 cash from operations of $118 million or EBITDA at $114 million.
Why the excitement over Akamai? In theory it could ramp profits faster than revenues, and with Internet usage continuing to vastly outpace economic growth, profits could grow rapidly. However, the promise of rapid profit growth eluded Akamai in 2009 and in 2010 until Q3.
Negative opinions of Akamai mainly come from over regard for competitors. For as long as I can remember, competitors were going to take significant business from Akamai in the next couple of years. A couple of years pass, and if anything Akamai has gained market share. Akamai seems to know how to maintain its market advantage without blowing too much money on R&D.
I would not buy Akamai at this price, but then I already own a reasonable amount. There is certainly an argument that this price will look cheap in a couple of years, maybe even by mid 2011. For a much more detailed look, see my Akamai Analyst Call Q3 2010 summary.
See also www.akamai.com
Saturday, January 23, 2010
AMD Q4 2009
AMD reported on its fourth quarter of 2009 this Thursday. It was a quarter of impressive improvements, with sales up 18% sequentially and 42% from the year-earlier quarter. That is excluding the almost $1.25 billion payment from Intel, which was entered in the operating expense accounts, and so did not appear in revenues. AMD also excluded the payment from non-GAAP numbers.
The hot money bailed out Friday, sending the stock price down over 12% to below $8. That is the way of hot money. Looking at the charts, my guess is a lot of hot money bought in above $8 during December and January, which makes this another example of hot money being stupid money.
Investors, the people who actually reap profits from business activity, need to look at the moving parts within AMD to see whether staying long is justified. The main reason to suspect it is not is that AMD is competing against Intel and NVIDIA, two very tough competitors. In addition, ARM-based processors are coming on strong against the x86 brethren, so in the next few years companies like Marvell (MRVL) may be nibbling even at mighty Intel's heels.
First, look at measures of profit. I'll use three: GAAP net income, non-GAAP net income, and EBITDA. Again, I exclude the $1.242 billion Intel settlement. GAAP net income was negative $64 million. Non-GAAP net income was positive $80 million. EBITDA ((Earnings Before Interest, Taxes, Depreciation and Amortization) was $282 million, impressive except that AMD has a lot of debt and so interest, and has invested a lot of capital and so depreciation does represent cash spending in the past. Still, I think it is fair to say that by some investor standards the quarter was profitable. The non-GAAP and EBITDA numbers exclude the former fabrication business. This makes sense to use since that business has been spun off (to GlobalFoundries). Starting in Q1 2010, AMD will be fabless.
As to the future, we want to know whether revenues will continue to ramp, and whether profit margins on revenues will continue to improve. Which means we have to look more closely at product trends.
AMD is now in the graphics processor business, and after years of struggle is showing some success. NVIDIA is the company to beat, and while that is still a distant goal as far as chip revenues, AMD almost certainly gained market share in Q4. AMD has the only GPUs (graphics processing units) that work with DirectX 11, the newest graphics standard. This attracts forward looking purchasers, and resulted in graphics revenues of $427 million, up sequentially 39.5% from $306 million, and up 58% from $270 million year-earlier. The worry would be that NVIDIA will have a better DirectX 11 capable processor some time in 2010. It is not a for sure thing, given how NVIDIA has been stumbling the last couple of years. While I don't expect AMD to have another year of 58% GPU revenue growth, I suspect whatever NVIDIA does, AMD will see healthy growth this year. We are going into a computer refresh cycle, and NVIDIA's slowness to market means it lost opportunities to be built in to systems.
In the CPU business revenue growth was robust, if not as eye-popping as with GPUs. Revenue was $1.214 billion, up 13.5% sequentially from $1.069 billion, and up 39% from $873 million year-earlier. Growth was described as broadly based, but Opteron 6-core server processors were described as having been a source of strength.
If profit margins expand along with revenues in 2010, today's AMD market capitalization of $5.3 billion is going to seem ridiculously pessimistic. On the other hand, since AMD still has almost $5 billion in long term debt and liabilities, any further stumbles of the kind we saw this last decade could have very serious consequences.
Q1 is typically seasonally down for CPU and GPU manufacturers. Given that AMD was not able to ship enough of its new GPUs to meet demand, there is at least a possibility that Q1 revenues could be closer to flat for AMD. That would be a very good sign for the full year 2010.
On the whole I would say I think AMD stock looks undervalued at $8 per share, but then I am a long-term AMD investor, so maybe I am being overly optimistic.
For more details, see my AMD Q4 2009 analyst conference summary.
See also amd.com
The hot money bailed out Friday, sending the stock price down over 12% to below $8. That is the way of hot money. Looking at the charts, my guess is a lot of hot money bought in above $8 during December and January, which makes this another example of hot money being stupid money.
Investors, the people who actually reap profits from business activity, need to look at the moving parts within AMD to see whether staying long is justified. The main reason to suspect it is not is that AMD is competing against Intel and NVIDIA, two very tough competitors. In addition, ARM-based processors are coming on strong against the x86 brethren, so in the next few years companies like Marvell (MRVL) may be nibbling even at mighty Intel's heels.
First, look at measures of profit. I'll use three: GAAP net income, non-GAAP net income, and EBITDA. Again, I exclude the $1.242 billion Intel settlement. GAAP net income was negative $64 million. Non-GAAP net income was positive $80 million. EBITDA ((Earnings Before Interest, Taxes, Depreciation and Amortization) was $282 million, impressive except that AMD has a lot of debt and so interest, and has invested a lot of capital and so depreciation does represent cash spending in the past. Still, I think it is fair to say that by some investor standards the quarter was profitable. The non-GAAP and EBITDA numbers exclude the former fabrication business. This makes sense to use since that business has been spun off (to GlobalFoundries). Starting in Q1 2010, AMD will be fabless.
As to the future, we want to know whether revenues will continue to ramp, and whether profit margins on revenues will continue to improve. Which means we have to look more closely at product trends.
AMD is now in the graphics processor business, and after years of struggle is showing some success. NVIDIA is the company to beat, and while that is still a distant goal as far as chip revenues, AMD almost certainly gained market share in Q4. AMD has the only GPUs (graphics processing units) that work with DirectX 11, the newest graphics standard. This attracts forward looking purchasers, and resulted in graphics revenues of $427 million, up sequentially 39.5% from $306 million, and up 58% from $270 million year-earlier. The worry would be that NVIDIA will have a better DirectX 11 capable processor some time in 2010. It is not a for sure thing, given how NVIDIA has been stumbling the last couple of years. While I don't expect AMD to have another year of 58% GPU revenue growth, I suspect whatever NVIDIA does, AMD will see healthy growth this year. We are going into a computer refresh cycle, and NVIDIA's slowness to market means it lost opportunities to be built in to systems.
In the CPU business revenue growth was robust, if not as eye-popping as with GPUs. Revenue was $1.214 billion, up 13.5% sequentially from $1.069 billion, and up 39% from $873 million year-earlier. Growth was described as broadly based, but Opteron 6-core server processors were described as having been a source of strength.
If profit margins expand along with revenues in 2010, today's AMD market capitalization of $5.3 billion is going to seem ridiculously pessimistic. On the other hand, since AMD still has almost $5 billion in long term debt and liabilities, any further stumbles of the kind we saw this last decade could have very serious consequences.
Q1 is typically seasonally down for CPU and GPU manufacturers. Given that AMD was not able to ship enough of its new GPUs to meet demand, there is at least a possibility that Q1 revenues could be closer to flat for AMD. That would be a very good sign for the full year 2010.
On the whole I would say I think AMD stock looks undervalued at $8 per share, but then I am a long-term AMD investor, so maybe I am being overly optimistic.
For more details, see my AMD Q4 2009 analyst conference summary.
See also amd.com
Sunday, October 18, 2009
AMD EBITDA
AMD announced its third quarter 2009 results and fourth quarter guidance at its analyst conference on Thursday, October 15, 2009. On a GAAP basis, AMD lost $128 million in the third quarter. While that improves on a $330 million loss in Q2, and on $134 million loss in the year-earlier quarter when revenues were higher, no one could claim it is a good number for stockholders.
On the other hand AMD announced $214 million adjusted EBITDA. That is Earnings before Interest, Taxes, Depreciation, and Amortization.
I know investors who keep a very close eye on EBITDA and prefer it as a measure to GAAP or even non-GAAP net income. A better way to look at it is it is a real number, and it has meaning if you understand it and its relation to the current stock price and future expectations.
In AMD's case, they announced that all non-GAAP measures (EBITDA is not a GAAP measure) reported are for the AMD Product Company. This is the main part of AMD that designs and sells microprocessors, graphics processors, and other semiconductor parts. The other part of the company own the fabs, the factories that make those parts, which has been largely spun off. AMD still owns part of that, which is now called GLOBALFOUNDRIES. At present GLOBALFOUNDRIES has only one customer, AMD, but it is talks to expand its client list.
The AMD Product Company, if it were a separate entity, would have been profitable, barely, on a non-GAAP basis, with net income of $2 million. GAAP, they showed a loss, because non-GAAP net income excludes certain one-time or non-cash expenses (and sometimes income).
The biggest single difference between EBITDA and non-GAAP earnings is interest, in this case costing $110 million. The rest is depreciation and amortization of $96 million, and a mixture of smaller items.
Depreciation and amortization refer to cash that was already spent in the past, usually on capital equipment or acquisitions, that is written off gradually as an expense due to IRS rules.
Interest, however, is a real expense, and in AMD's case is caused by over $5 billion it owes from acquiring ATI. The ATI purchase is beginning to pay off with traction in graphics and the planned introduction in 2010 of combined microprocessor-graphics chips, but the money owed and the interest is quite real. The interest payments won't go away until the principle is paid down, and it can't be paid down without cash profits.
Knock $110 in interest off the $214 EBITDA, and you have $104 million in what you could argue was some kind of profits for the quarter.
Q3 is usually a strong season for AMD, compared to Q1s and Q2s. But the economy should recover in 2010. If Intel does not start another price war — not likely given that they are under a great deal of scrutiny for their illegal and unethical past behavior — it is not unreasonable to project $104 million out another three quarters.
With a big rounding that is $400 million a year in earnings of a sort. A moderately bullish analyst might argue that a market capitalization of $8 billion is justified by those earnings. To get to an $8 billion market cap, the price of AMD's stock would need to hit $11.50 per share.
That sounds very bullish, and given the competition, it might be. But it might also be the case that in 2010 AMD is going to take a lot of market share from both Intel and NVIDIA, and it might even be market share with good margins. In which case this little calculation exercise will seem conservative in retrospect.
In conclusion, both the risks and opportunities for AMD investors are great. It is not a stock for the faint of heart.
So keep diversified!
See also AMD: The Dream Renewed [May 18, 2009] in which I describe the situation based on the AMD v. Intel lawsuit. And of course my AMD analyst conference summary for October 15, 2009
Disclaimer: I own some AMD stock.
On the other hand AMD announced $214 million adjusted EBITDA. That is Earnings before Interest, Taxes, Depreciation, and Amortization.
I know investors who keep a very close eye on EBITDA and prefer it as a measure to GAAP or even non-GAAP net income. A better way to look at it is it is a real number, and it has meaning if you understand it and its relation to the current stock price and future expectations.
In AMD's case, they announced that all non-GAAP measures (EBITDA is not a GAAP measure) reported are for the AMD Product Company. This is the main part of AMD that designs and sells microprocessors, graphics processors, and other semiconductor parts. The other part of the company own the fabs, the factories that make those parts, which has been largely spun off. AMD still owns part of that, which is now called GLOBALFOUNDRIES. At present GLOBALFOUNDRIES has only one customer, AMD, but it is talks to expand its client list.
The AMD Product Company, if it were a separate entity, would have been profitable, barely, on a non-GAAP basis, with net income of $2 million. GAAP, they showed a loss, because non-GAAP net income excludes certain one-time or non-cash expenses (and sometimes income).
The biggest single difference between EBITDA and non-GAAP earnings is interest, in this case costing $110 million. The rest is depreciation and amortization of $96 million, and a mixture of smaller items.
Depreciation and amortization refer to cash that was already spent in the past, usually on capital equipment or acquisitions, that is written off gradually as an expense due to IRS rules.
Interest, however, is a real expense, and in AMD's case is caused by over $5 billion it owes from acquiring ATI. The ATI purchase is beginning to pay off with traction in graphics and the planned introduction in 2010 of combined microprocessor-graphics chips, but the money owed and the interest is quite real. The interest payments won't go away until the principle is paid down, and it can't be paid down without cash profits.
Knock $110 in interest off the $214 EBITDA, and you have $104 million in what you could argue was some kind of profits for the quarter.
Q3 is usually a strong season for AMD, compared to Q1s and Q2s. But the economy should recover in 2010. If Intel does not start another price war — not likely given that they are under a great deal of scrutiny for their illegal and unethical past behavior — it is not unreasonable to project $104 million out another three quarters.
With a big rounding that is $400 million a year in earnings of a sort. A moderately bullish analyst might argue that a market capitalization of $8 billion is justified by those earnings. To get to an $8 billion market cap, the price of AMD's stock would need to hit $11.50 per share.
That sounds very bullish, and given the competition, it might be. But it might also be the case that in 2010 AMD is going to take a lot of market share from both Intel and NVIDIA, and it might even be market share with good margins. In which case this little calculation exercise will seem conservative in retrospect.
In conclusion, both the risks and opportunities for AMD investors are great. It is not a stock for the faint of heart.
So keep diversified!
See also AMD: The Dream Renewed [May 18, 2009] in which I describe the situation based on the AMD v. Intel lawsuit. And of course my AMD analyst conference summary for October 15, 2009
Disclaimer: I own some AMD stock.
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