Daktronics--the most visible company in the business of creating electronic LED signs where the primary raw material costs--ie LEDS--is, will, and has been plummeting. Finally being passed on to better margins for Daktronics. Doesn't hurt that electronic displays--think of all the LED billboards you pass on your way to work--are proliferating like Presidential campaign ads.
Look at it this way Dakt cash 30m rec 22 m long term debt 1m they have many options with balance sheet. Stock buy back would surely increase earning pr share. Or maybe another good divy payout. I prefer the stock buy back as it would lower earnings pr sh and thus price of stock increase-- any thoughts???
I can't quite get your numbers though your idea seems correct. I see about $64mm of cash and securities, net of A/P, receivables of $19mm or so and inventory of $56mm against a couple million of various debts. It certainly is true that DAKT has been managed conservatively and I can see the strength of their balance sheet quite easily. I am also impressed by their reserves of $23mm for warrantee expenses which may or may not occur. I don't know how accurate the estimate is, but at least they acknowledge that cost which I appreciate.
The assets which DAKT keeps on the books are quite large and they could certainly buy back 1 mm shares for $10mm or so. But that would only decrease shares outstanding about 3%. So EPS would increase 3% or less than 1 cent a share last year. The figures I see indicate that share counts continue to go up in fact and were very close to 42mm shares at the end of the first quarter. Yes, more could be spent on buying shares, but as I look at the year end numbers for the last couple of years, I see they kept more than $100mm in liquid or almost liquid assets each year and we are at less than that now. An easy place to look at this is in the Value Line book value per share which got above $5 in 2008 and has varied around the $5 level for the next 4 years. That includes more than liquid assets, but does give an overall idea of balance sheet strength.
I really expect EPS to be the driver of Daktronic's price over the next few years and a consistent trend would be the most welcome of predictors. Rising rapidly to the previous EPS high of about $.60 (over 3 years-06, 07, 08) and then sustaining a growth rate of 10% or more would cause our price to rise significantly. Warrantee reserves are an effort to make earnings more consistent and will help get the price back up. All just in my opinion. Which is often wrong.
It sounds like everyone at DAKT is pulling together a bit more. It still concerns me that earnings are impacted by unexpected profits in two divisions, but at least those profits weren't squandered. Margins next quarter to be not quite so high due to those exceptional profits in Q1. One large win at LAX and 6 months of deliveries to the NJ turnpike should backdrop whatever other good results the divisions can provide.
I am encouraged by efforts to improve margins and increase efficiency. Overall sales continue to grow which ought to fill the 3 factories lines a bit more. With labor still relatively unconstrained, they may be able to show a pretty nice result this year. And little debt.
I am mildly encouraged about the potential stock price one year out. Still, they earned $.64 a share in 08 when sales in the first quarter were $161mm vs this year $133 with unexpected profits in two divisions. In 08 they reported profits of $.24 that first quarter. So even if DAKT could reach $.50 a share this year, I can't really value the company at more than 20 times earnings or $10. Yes, the price could go higher with a lot of hopes for growth, but there is no way DAKT can show any sort of consistent growth pattern in this one year after several years of sporadic earnings reports.
So I might expect a runup to $15 or so sometime this year but I would not value the earnings potential of the company over $10 at this point in time.
Thanks for the good insight Skip. Management seems to talk quite a bit about increasing margins more permanently by getting their costs down so I hope they are successful. Also in the conference call they mention that Daktronics is the "safe" provider for many customers because of their long experience in the LED display market. I know this was a great advantage in some companies i have worked for and with many newer companies entering the LED display and billboards business that should help Daktronics. The potential business sure seems to be increasing if they can just keep or increase their market share.