Call of the Week: Two Growth Plays to Consider

Robert Maltbie |

In this week's analysts meeting for Singular Research, we identified two names that we think could have a lot of potential.

Measurement Specialties, Inc. (MEAS)

Measurement Specialties is a global designer and manufacturer of sensors and sensor-based systems, which measure pressure/force, position, vibration, temperature, humidity, and fluid properties. The company's products are used as embedded devices by original equipment manufacturers (OEMs) or as stand alone sensors for test and measurement to provide critical monitoring, feedback and control input.

In the fourth quarter of 2012, the company produced strong results ith EPS of $0.52 that exceeded our estimate by $0.06. Sales also exceeded our earlier forecast, and margins rebounded strongly from the previous quarter. Singular believes Measurement Specialties is well-positioned for 2013 as well. We reiterated our buy rating and $44 price target. Shares are currently trading at around $33.

A few other highlights include:

  • Q4:12 revenues increased 12.6%. FY:12 revenues gained 14.0% to $313.2 million
  • Q4:12 EPS of $0.52 was $0.06 above our estimate. FY:12 EPS of $1.74 was 5.4% below FY:11 levels.
  • Management had previously announced that its book-to-bill ratio was 1.01 in Q4:12 and 1.07 in Q3:12. This is an improvement over a trough of 0.97 seen in Q2:12.
  • On April 2, MEAS acquired Cosense for $11.5 million cash. Cosense manufactures liquid level sensors and this purchase complements the 2011 acquisition of Gentech International.

Aceto Corporation (ACET)

Aceto Corp. is a virtual manufacturing company, distributing more than 1,100 chemical compounds used principally as raw materials or finished products. The company has business operations in nine countries and sources more than two-thirds of its products from Asia, buying from approximately 500 companies in China and 200 in India.

We recently reiterated our buy rating on the company as well. Here are a few highlights:

  • Net sales were $121.4 million, an increase of 3% yoy but below our estimate. Health Sciences grew 10.5% with new products from Rising Pharmaceuticals (acquired December of 2011) and strong nutritional product sales. Specialty Chemicals increased 9% yoy on strong demand for agriculture intermediates. Agricultural Protection Products decreased 45% yoy – due primarily to a planned withdrawal from glyphosate sales.
  • Gross profit grew 14% to $22.2 million – due to a better mix of high margin Health Sciences products and the exit from the lower margin glyphosate business. Excluding a tax gain, adjusted net income was $4.9 million, or $0.18 per share – exceeding our $0.15 estimate.
  • Q2 strength was partially attributed to timing and seasonality. Rising launched two new products in April for a total of six in FY:12 with one more expected. Management noted that results can be difficult to predict on a quarterly basis.
  • ACET continued to pay down debt in Q2 while maintaining a healthy 2.4% dividend. Total debt is now $50 million or $22 million net of cash.
  • We initiated coverage late last year with the stock trading near $6. At that time, we anticipated significant profit growth mainly due to the Rising acquisition and its 30+ product pipeline. Our thesis is playing out in strong bottom line results.
  • We continue to project sales growth in the mid-teens in FY:13 – driven by 5/6 new product launches. Our adjusted EPS estimates are $0.62 and $0.87 for FY:12 and FY:13, respectively. We are adjusting our price target up to $11, which is only about 12.5x FY13 EPS.

Disclosures: To read Singular Research’s important disclosures, click here. For the full March 2012 Market Indicator & Strategy Report, and other research reports from Singular Research, click here.

Singular Research

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
RDS25 Shell International Finance B.V. 3.250% Gtd Notes n/a n/a n/a 0
ACET Aceto Corporation 21.41 -0.15 -0.70 255,687

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