TTM Technologies (TTMI) makes PCBs (printed circuit boards) for the communications, industrial, medical, and consumer electronics industries. It owns plants in the U.S. and in China. The U.S. facilities generally do small runs of PCBs for prototypes and specialized, low volume products. Chinese facilities do larger PCB runs for computer and communications equipment, cell phones including smartphones, and more recently tablet computers and e-readers.
Q3 2011 was a no-growth quarter. Revenues were $358.3 million, down 2% sequentially from $366.1 million, and about flat against $356.8 million in the year-earlier quarter. GAAP net income was $24.5 million, up sequentially from negative $20.3 million, but down 16% from $29.1 million year-earlier. Q2 profits were hit by a one-time non-cash accounting charge for writing off some obsolete factory equipment. So, switching to a non-GAAP view of net income, we have: Q3 2011 $31.0 million, Q2 2011 $32.9 million, Q3 2010 $35.0 million.
While growth has been stagnant this year, profits have remained healthy. Annualizing Q3 non-GAAP EPS gives a P/E ratio is about 7.2 at today's closing price of $11.01 per share.
Because TTM has a broad array of end customers and a global presense, to a large extent its fortunes reflect those of the electronics industry as a whole. For that industry Q3 was a slow quarter in a slow year. Everyone is worried about end demand because of the economy. I believe TTM's ability to make a profit in this environment means it is a reliable cash generator. If the electronics industry picks up again in 2012, there is upside potential.
In the Q3 conference call on November 2nd management noted that some orders were pushed out past the end of the quarter. Cash flow from operations was $42.6 million. The cash and equivalents balance ended at $207.7 million. Long term debt ended at $366.7 million. TTM made capital expenditures of $28.3 million, mostly for new high-end manufacturing equipment in China.
It is notable that debt still exceeds cash. The debt was used to build and expand plants in Asia. So far it has been a good use of debt, but it does create some risk if there is an extreme economic slowdown. Paying down debt has been a priority use for cash.
TTM tracks end markets into 5 segments. For the quarter aerospace and defense was below trend. Cell phones were strong, particularly smartphones. Computers and related were weak and are expected to continue to be weak in Q4. The medical and industrial segment was flat. Networking and communciations, which accounted for 38% of revenue, is expected to be soft in Q4. There is also an "other" category, which saw growth because they are producing the PCBs for a new e-reader for an unspecified customer.
The top five customers were: Apple, Cisco, Ericsson, Huawei and ZTE. Only one of them accounted for more than 10% of revenue.
I believe that as the global electronics industry recovers TTM will continue to pay off debt and eventually be better positioned to use cash for buy-backs and dividends.
Disclaimer: I am long TTMI. I have no plan to change my position this quarter.
Keep diversified!
Showing posts with label medical. Show all posts
Showing posts with label medical. Show all posts
Monday, November 14, 2011
Friday, March 11, 2011
Cantel Medical (CMN) Growth Spurt
Cantel Medical has been a good stock to hold in 2010 and so far in 2011, recently crossing the line to over $25 per share after showing a 52 week low of $13.39. Cantel is not a household word, so I thought I'd fill in my readers on what they do and why they might want to own a piece of this company.
The biotechnology stocks I own are mostly drug plays, with one surgical robotics play. Cantel Medical is a smallish company (market capitalization today ended at $440 million). Cantel specializes in infection control through sterilization and disposables. I know that infection control is more cost effective than treatment, and is becoming a much larger problem because of the evolution of multiple-antibiotic resistant bacteria. I watched Cantel for a while, then bought stock a couple of times when I thought the valuation was good.
Cantel is not a well-known name, even in hospitals, partly because it operates through named divisions. Minntech makes and markets endoscope and dialysis equipment sterilizers. Crosstex is the disposables business, working mostly in the dental market, but also moving into the general medical market. It makes face masks, sterilization patches, and other single-use items. Mar Cor makes machines to purify water, often for specialized medical needs. A smaller division is Saf-T-Pak, which produces specialty packaging for transporting specimens, and related materials.
When there are infectious disease scares Cantel gets bursts of extra revenue, so in evaluating the stock you might want to both zero-out such bursts to get a real trend line, and also figure that over time those bursts do add up.
Also, while Cantel does develop products and grows by increasing sales organically, they also grow by acquisition. If you, like me, have been burned by poor acquisition strategies of other companies, you might not take this as a recommendation. However, for the few years I have followed Cantel they have done very well with acquisitions. They don't pay to much and they usually acquire a division of a company they want, rather than the whole company. Then they cross-sell the new products with their established sales force. They have made it work.
As to the latest bump, management attributes that mainly to strong endoscope sterilizer equipment sales. The newer machines are called reprocessors; they do helpful things like inventory management that the aging machines can't do. For some reason their are a lot of aging endoscope reprocessors out there, particularly in VA hospitals, and 2011 seems to be the year they have a capital equipment budget for new machines. This burst will probably slow down later in 2011, but will stay above 2010 levels.
The water purification business just keeps growing. Also the disposables business should ramp up as the unemployment rate tweaks down this year. People have been avoiding doctor and dental visits for economic reasons; when they have the dough to head back in for a checkup, the run rate will pick up again.
So, in summary, the overall anti-infection story is a good one. Cantel is a pure infection play, and it has top-notch management. Should you be cautious because the stock has already had a good run lately? Sure, but the trailing P/E ratio at the end of today was 22.6 (per NASDAQ), which is still reasonable for a company with a strong growth track record. Today's ending price seems fair to me and attractive for long-term investors looking for diversification in the healthcare space. You might want to note that the company has more debt than cash, as debt was used to make recent acquisitions, but cash generation can make quick work of the debt.
For more details on quarter results, see my Cantel Medical Q2 fiscal 2011 analyst call summary.
The biotechnology stocks I own are mostly drug plays, with one surgical robotics play. Cantel Medical is a smallish company (market capitalization today ended at $440 million). Cantel specializes in infection control through sterilization and disposables. I know that infection control is more cost effective than treatment, and is becoming a much larger problem because of the evolution of multiple-antibiotic resistant bacteria. I watched Cantel for a while, then bought stock a couple of times when I thought the valuation was good.
Cantel is not a well-known name, even in hospitals, partly because it operates through named divisions. Minntech makes and markets endoscope and dialysis equipment sterilizers. Crosstex is the disposables business, working mostly in the dental market, but also moving into the general medical market. It makes face masks, sterilization patches, and other single-use items. Mar Cor makes machines to purify water, often for specialized medical needs. A smaller division is Saf-T-Pak, which produces specialty packaging for transporting specimens, and related materials.
When there are infectious disease scares Cantel gets bursts of extra revenue, so in evaluating the stock you might want to both zero-out such bursts to get a real trend line, and also figure that over time those bursts do add up.
Also, while Cantel does develop products and grows by increasing sales organically, they also grow by acquisition. If you, like me, have been burned by poor acquisition strategies of other companies, you might not take this as a recommendation. However, for the few years I have followed Cantel they have done very well with acquisitions. They don't pay to much and they usually acquire a division of a company they want, rather than the whole company. Then they cross-sell the new products with their established sales force. They have made it work.
As to the latest bump, management attributes that mainly to strong endoscope sterilizer equipment sales. The newer machines are called reprocessors; they do helpful things like inventory management that the aging machines can't do. For some reason their are a lot of aging endoscope reprocessors out there, particularly in VA hospitals, and 2011 seems to be the year they have a capital equipment budget for new machines. This burst will probably slow down later in 2011, but will stay above 2010 levels.
The water purification business just keeps growing. Also the disposables business should ramp up as the unemployment rate tweaks down this year. People have been avoiding doctor and dental visits for economic reasons; when they have the dough to head back in for a checkup, the run rate will pick up again.
So, in summary, the overall anti-infection story is a good one. Cantel is a pure infection play, and it has top-notch management. Should you be cautious because the stock has already had a good run lately? Sure, but the trailing P/E ratio at the end of today was 22.6 (per NASDAQ), which is still reasonable for a company with a strong growth track record. Today's ending price seems fair to me and attractive for long-term investors looking for diversification in the healthcare space. You might want to note that the company has more debt than cash, as debt was used to make recent acquisitions, but cash generation can make quick work of the debt.
For more details on quarter results, see my Cantel Medical Q2 fiscal 2011 analyst call summary.
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