Earnings Momentum Good for Smaller Electronic Components Firms

By Wiggins, Phillip H. | THE JOURNAL RECORD, November 21, 1989 | Go to article overview

Earnings Momentum Good for Smaller Electronic Components Firms


Wiggins, Phillip H., THE JOURNAL RECORD


Despite problems facing the $42 billion electronics components industry, some smaller companies in high-growth niche markets are showing significant earnings momentum.

The industry's troubles were recently underscored by disappointing third-quarter earnings reports from two corporate giants, Zenith Electronics Corp. and Motorola Inc.

Still, Wall Street analysts see promise in selected smaller electronics companies serving growth markets, including local area networks, cellular telephones, medical equipment, airport security systems and military display systems. Some are trading at price/earnings ratios below the current stock market P/E of about 13, several analysts said.

While large electronics companies also have operations in these niche markets, the bulk of their revenues is derived from slower growing or no-growth business sectors, analysts say.

Of course, some of the smaller companies with strong niche markets at present are potentially vulnerable to adverse factors, like technological breakthroughs that would make their products obsolete, recession and a possible inability to raise capital fast enough to finance growth.

Benefiting from the boom in local area networks - a faster, more efficient system that allows peripheral computers to share information without going through a mainframe - is North Hills Electronics Inc., of Glen Cove, N.Y., which trades over the counter. The company manufactures baluns, or adapters, which allow incompatible computer systems to communicate.

Jerome Ballen of Fahnestock & Co. said North Hills' earnings could reach 17 to 20 cents a share in fiscal 1990, ending Jan. 31, up from 13 cents a share in 1989. The stock closed Friday at $1.75, down 12.5 cents.

Del Electronics Corp., an over-the-counter company based in Mount Vernon, N.Y., makes power supply systems and components used by medical, industrial and military companies. In the medical industry, for example, Del provides high-voltage components used in laser surgery and CT scans.

Recently the company announced plans to acquire RFI Inc. of Bay Shore, N.Y., a $10 million subsidiary of KDI Holdings of New York.

Assuming that the RFI acquisition is completed, analysts estimate that Del Electronics will earn 40 to 45 cents a share in 1990, ending July 31, up from 30 cents a share reported in fiscal 1989. …

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