As promised...from CEOCast, aka, Investrend
This is an email blast I received from them today. Gawd this just pisses me off to no freaking end.
Wednesday, October 22 2003
SPECIAL NEWSLETTER
eResearchTechnology (NASDAQ: ERES) Reports Blockbuster Earnings and Raises Guidance Significantly; Socket Communications (NASDAQ: SCKT) Reports Record Revenues and Generates Operating Cash Flow for the first time since 2000
eResearchTechnology (NASDAQ: ERES), a leading e-research technology and services provider, delivered blockbuster third quarter earnings and a highly compelling case for investors to bid the shares higher. While the stock’s meteoric rise has left the shares priced “nearly for perfection”, the company announced stellar third quarter results, handily beating Wall Street estimates, and once again raised guidance significantly. The results and company guidance highlight the strong growth opportunities ahead for the company in the centralized ECG market and further validate our premise that the company is the clear leader in a market that is growing faster than any we have seen in years. The stock closed Wednesday at $41.76, giving the company a market capitalization of approximately $1 billion, on a fully-diluted basis.
The numbers: The company reported revenues for the third quarter ended September 30, 2003 of $17.5 million and net income of $3.9 million, or $0.16 per diluted share. This marked the eleventh consecutive quarter of sequential revenue and earnings growth. Revenues increased 60% versus the 2002 Q3 quarter, while earnings rose 184%. Earnings came in 2 cents above consensus estimates. Significantly, the company expanded margins on a sequential basis to 62.8%, from 60.6% in the prior quarter. ERES ended the quarter with a backlog of $94 million, including the recently announced $36 million Franchise agreement. The company’s cash position increased by $9.7 million to $41.5 million.
The company raised its fourth quarter guidance to revenues between $18.7 and $19 million and net income of $0.19 to $0.20 per diluted sgare. This represents the fourth consecutive quarter the company has raised its guidance significantly. Despite large quarterly increases in guidance, the company has exceeded estimates for each of the last four quarters. For fiscal 2004, the company now expects revenues of $99 million to $101 million and EPS of $1.02 to $1.05. Despite increasing its FY ’04 earnings estimates by approximately 25% in the last month, we believe its guidance remains extremely conservative. To put its FY ‘04 guidance into perspective, the company and Wall Street expected it to earn $0.33 per share for FY ’03 (split-adjusted) at the beginning of this year.
When we initiated coverage of the company in December at $7.44 (split-adjusted), the stock was relatively unknown and often at the mercy of short-sellers, who failed to understand the company’s business or the market opportunity. Now, it is among the highest P/E multiple stocks in the market. Is there upside left from here? Absolutely, or we would not remain as confident as we are in our ownership position of approximately 380,000 shares. There are four principal reasons why we remain so bullish that the company will continue to deliver the same kind of earnings momentum in the future it has demonstrated to date.
1. Margin expansion. ERES increased its gross margins by 2.2 points on a sequential basis. This suggests to us that there is little pricing pressure in the market, demand continues to be robust and that the competition is way behind. Anecdotal evidence through conversations with pharmaceutical companies also supports this conclusion. Historically, companies in the early stages of a growing market are able to expand their margins. ERES is a classic example.
2. Growing Phase I opportunities. The DIA meeting and conversations with pharmaceutical companies suggests that there will be increasing demand for definitive QT studies in early stage clinical trials. This is a blockbuster opportunity for ERES, and is not in the company’s current guidance, since Phase I studies occur on relatively short notice, and often need to be completed within the same quarter. Just one new Phase I study per quarter could be worth an additional 2 cents per share in earnings (based on the current outstanding shares). We believe that this market alone could be a $600 million market, given the number of drug candidates today. In fact, many companies that have already completed Phase III trials may have to complete Phase I ECG studies before gaining FDA approval. Management discussed these trends in its call this evening.
3. Franchise agreements. The company recently announced a $36 million agreement, and raised its guidance for FY ’04 by 10 cents from this contract alone (our estimates are that the contract was likely worth as much as 3-4 cents more for FY ’04). Management said that it was in discussions with 6 more pharmaceutical companies for similar deals, and while we don’t expect a similarly sized deal will result from all of them, we feel that there could be a series of such deals that could each add 4-5 cents per share in ’04 earnings that are not included in current expectations.
4. Electronic Data Capture Business. Although this business has been largely overlooked by Wall Street and the company has said little about it until recently, Management went to lengths in the conference call to highlight emerging opportunities. EDC revenues grew last quarter by 113% versus the year-earlier period. While we will not quantify the upside potential of this business, it could be the “icing on the cake” to drive further top and bottom-line growth.
Where does the stock go from here? After such a stellar run, many investors will be tempted to take profits and move on. We believe this would be like leaving a World Series game in the early innings. The same analysts who raise their estimates and price targets every quarter on the company are the ones who would have you believe that the size of the market is unclear. They argue that there is regulatory uncertainty, increasing competition and a relatively small market. The facts simply do not support these analysts’ views (investors who followed them have missed out on a substantial move in the stock). Companies facing heightened competition are unable to increase margins as ERES has. Further, if there was “regulatory uncertainty”, why would a large, sophisticated multi-national pharmaceutical concern, that likely has far better access to senior FDA executives than an analyst, commit $36 million over two years if it expected FDA guidance to change? Finally, while the ultimate size of the centralized ECG laboratory market is uncertain, the words and actions of the key participants – big pharma and the FDA – support our contention that this will ultimately be a billion dollar market.
As a result of both third quarter results and numerous upside opportunities not included in guidance, we are increasing our P/E multiple to 50 times our revised 2004 EPS estimates of $1.25, which we still believe to be highly conservative. This multiple is still well below our estimates for ’04 revenue growth, less than half of our estimates for ’04 earnings growth and below our estimates for long-term earnings growth. The company’s announcement this evening and conference call served to confirm our belief that rapidly rising revenues and earnings, growing margins and backlog and significant upside to its current guidance makes this the “best growth opportunity on Wall Street” that is only getting better.
Socket Communications (NASDAQ: SCKT), a provider of a broad range of connection products for Windows-powered handheld computers, reported strong third quarter results for the period ended September 30, 2003 highlighted by record revenues and a return to profitability for the first time since 2000. The company generated revenues of $5.7 million, a 53% year-over-year increase and an 11% sequential increase compared to the prior quarter. While the company did not generate GAAP income, posting a small loss, it reported $100,000 in positive cash flow from operations. The company reduced its GAAP loss by $500,000 and will likely generate net income in its fourth quarter. The stock closed Wednesday at $3.36 giving the company a fully-diluted valuation of approximately $91 million.
The company’s results suggest that Dell’s entry into the market, creating a lower price level for hand held devices, has had a direct impact on the company’s prospects. Since lower cost PC’s were only introduced in June, the company is likely to benefit disproportionately in Q4 and FY ’04. In addition, the stock represents an excellent way to play a recovery in IT spending, as increasing corporate technology spending should lead to greater applications for SCKT’s bar code scanners, one of the key products for the company. While there has been a great deal of promise shown by Bluetooth, the company has turned potential into revenues. Its first standalone Bluetooth wireless technology product, a Global Positioning System receiver, has generated more than $2 million in revenues since its introduction in the fourth quarter of 2002.
Lately, the stock has been on a tear. SCKT is up 366% for the year, and recently set a new 52-week high of $3.54 on heavy volume. Still, the company has a valuation of approximately $92 million, a fraction of its value several years ago. While there are no pure-play public company competitors, the company trades for less than 5 times sales and for nearly half of its book value. Since the company’s 2002 fourth quarter was weak, we feel that the year-over-year comparisons will look particular impressive. SCKT’s also completed Q3 with approximately $6.3 million in cash.
While the stock is not cheap, the company has begun to generate significant operating leverage in its business, as evidenced by another quarter of strong sequential revenue growth. We believe that new products, improved corporate IT spending and strong margins all position the company for a fourth quarter that should be its best one yet.
All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO ITS OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. This publication accepts compensation from certain of the companies that it features.(so who are they to talk about being more specific. Not only do they not disclose who they got it from, as per their own propaganda, they don't even bother to disclose the amount) To the degrees enumerated herein, this newsletter should not be regarded as an independent publication. Our editors may, from time to time, acquire positions in the companies that they cover. This could represent a conflict of interest. The CEOcast newsletter shall be under no obligation to inform readers about its trading activities. CEOcast’s editors reserve the right to buy or sell shares in these companies at any time. (Oh I see, THEY are under no "obligation" to inform their readers of the trading activities, but everybody else is!!!)The following companies, featured in this newsletter, have compensated CEOcast: eResearchTechnology has terminated its investor relations agreement with CEOcast; CEOcast received its final payment(for how much, in what form and what do they intend to do with it. Not to mention that according to them you have to disclose not only the source, but if the source is a 3rd party you have to name that 3rd party) under the contract and is due no further compensation; editors of CEOcast own approximately three hundred eighty thousand shares of stock; Socket Communications pays fifteen thousand dollars per month.
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