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American Science & Engineering Inc. Message Board

  • bengrahamvalueinvestor bengrahamvalueinvestor Jun 28, 2004 10:59 PM Flag

    Advest report today

    This morning, ASE announced the resignation of Ted Owens, Executive Vice
    President, Treasurer and Chief Financial Officer, effective June 24, 2004. Mr.
    Owens will be replaced by Ken Galaznik, the current Vice President of Finance,
    until a search for Mr. Owens' permanent replacement is completed. There is the
    possibility of additional expense related to Mr. Owens' resignation in the current
    quarter.
    We want to emphasize that the company is in excellent financial condition and that
    this management change does not in any way signify financial or accounting
    issues, in our view. The audits have been completed and the 10-K's and 10-Q's
    have had the appropriate sign-off and there are no issues with the company's
    independent auditors. In our opinion, the change is part of a normal transition and
    represents President and CEO Anthony Fabiano's efforts at putting his own team in
    place.
    While senior management departures are always a concern, we think activity in
    terms of requests for product quotes and new orders are indicators that business is
    moving along more smoothly than in the past. Although we had no hint of a
    management change during our recent visit to ASE's facilities in Massachusetts,
    we are not totally surprised since Mr. Owens was brought in by the prior
    leadership. We believe he did an admirable job in getting the company's financial
    management back in shape and helping to return ASE to profitability by
    identifying expense areas that did not make financial sense.
    Based on the chatter that we pick up in our conversations with contacts in the
    defense and homeland security community, we think there are many opportunities
    for ASE to benefit in the near and long terms. With more equipment in the field,
    we think the likelihood of continued growth in the recurring revenue parts and
    service segment of ASE's business should continue to represent about 25% of
    revenue, even as the top line grows with additional deployments of the company's
    Z Backscatter Van (ZBV). We also think order activity for the ZBV will pick up,
    with a corresponding increase in production rate, as funds are allocated by the
    federal government and its foreign counterparts. The ZBV is a cost-effective tool
    in security for ports, transportation, infrastructure protection as well as for the
    military. In our opinion, the ZBV will be ASE's major source of revenue and
    earnings growth for the foreseeable future.
    We are maintaining our BUY rating and our 12-month price target of $23. We
    think that this is a conservative target since the company has thus far delivered
    results that meet the near-term goals of its business plan and additional orders
    could generate upside to our current financial forecast. Furthermore, acquisition
    activity in the sector has picked up and prices paid indicate an upward change in
    valuation metrics for participants in businesses with a clearly defined role in the
    homeland security equipment marketplace. Finally, we think ASE possesses a
    scarcity value since we are not aware of a product truly competitive with the ZBV
    in terms of price and performance. We would use today's weakness as an
    opportunity to purchase ASE shares.

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