Newport Corp., the Fountain Valley-based laser research equipment maker, has suffered two years of declining earnings, and its stock is now hovering near its 52-week low.
But stock analysts love this company.
Some, such as Paul Salazar of Crowell, Weedon & Co., are actively recommending the purchase of Newport shares and are forecasting that if all goes according to plan, the stock could more than double from its Friday close of $12.50 to hit $30 in 1988.
Other analysts, such as William Tichy of Dean Witter & Co., are a bit more reserved. But even Tichy calls Newport shares "an attractive value" and adds that if the shares go any lower, "it would be like giving them away."
What is attracting these stock pickers to Newport is a balance sheet with virtually no debt, steadily rising sales, a firm grip on its market and strong, steady management.
Even Newport's earnings decline is attributed to its sales success: When sales outstripped Newport's ability to manufacture its precision scientific instruments, the company embarked on an expansion of its facilities.
Now, with an excess of manufacturing capacity, Newport is temporarily running less efficiently than in the past, and that is showing up on its bottom line.
Before the buildup, Newport produced an impressive 57% gross margin, or difference between the sales price of its products and the cost of materials used in production. Tichy says most companies would be happy to achieve a 10% margin.
Newport's margin has now fallen below 45%, but Salazar believes that with even a moderate uptick in sales, the company will be back to its historic levels of profitability.
For the fiscal nine months ended April 30, Newport's net income dropped 24% to $3.5 million, or 37 cents a share, from $4.6 million, or 49 cents a share, a year earlier.
For the fiscal year ending July 31, Salazar is forecasting that Newport will report net income of about $5 million, or 55 cents a share. That's down from $6.2 million, or 67 cents a share, last year.
Tichy is estimating the current fiscal year's net income at $4.7 million, or 50 cents a share.
For fiscal 1988, Salazar is forecasting earnings will jump to 90 cents a share, and Tichy is estimating a more conservative 70 cents a share.
Sales are expected to jump to between $43 million and $46 million in the current fiscal year, from $40.1 million a year ago. For fiscal 1988, analysts estimate that sales could grow to $53 million.
That kind of sales and earnings growth, these analysts say, could push Newport shares back over the $30 mark they last had in 1980.
Tichy said that as a group, over-the-counter technology stocks have missed the stock market's big run-up during the last four years. Since 1983, the Dow Jones Industrial Average of blue chip stocks has doubled to the 2,400 level, while the OTC average has gained just 13%. And that, Tichy says, means that there are some real bargains to be picked up. Newport, with a hefty $30 million in cash and a net worth of about $67 million, is one of the better values.
Newport is a dominant supplier of equipment to the laser research and development market, according to Salazar. Among its biggest-selling products are vibration isolation tables and various optical instruments and components.
The company recently produced a new master catalogue, a metric catalogue and a Japanese language catalogue. Tichy says overseas sales could climb to 25% of total revenues from 18% this year, if the U.S. dollar stays at or near its current level relative to the other major world currencies.
Salazar says that even if the timing isn't quite right for Newport, "I'm willing to wait on this company."