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Another IT offering filed
Defense Market Report
Exclusively for InvestorIdeas.com
By Jim Smith
May 26, 2006
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Just when you thought the defense IT market was saturated, Stanley Inc registered on 12 May for an initial public offering (IPO) that could raise US$130 million.
Stanley is a provider of information technology consulting services to US defense and federal civilian government agencies.
Citigroup and Wachovia Securities are the top two underwriters on the deal. Raymond James, Cowen & Co and Stifel Nicolaus have been named as co-managers.
Terms and timing have yet to be disclosed.
According to Stanley’s filings with the US Securities and Exchange Commission (SEC), the company has been operating at a profit every year since 1996.
In the year ending March 2005, Stanley earned a net profit of US$11.2 million on revenues of US$282.5 million – a sizeable increase from the US$8.1 million earned in the previous year.
Revenue has been growing at a rate of 35 per cent annually over the last 10 years.
Much of the proceeds of the IPO will be used to pay down debt, including debt incurred in the company’s recent acquisition of Morgan Research Corporation which was completed in February.
Before you run to your broker, let’s look at some of the numbers.
The 66 IPOs that have launched this year to date represent a 22 per cent upswing in number of filings over the same period last year. Most of those IPOs have been in the health-related sector.And IPOs so far this year have returned seven per cent. Investors who are keen on double-digit returns need to think twice.
Defense equities are still doing well although some are trading below their offer prices.
For example, CPI International, which provides microwave and RF solutions for defense and commercial applications, is trading at US$17.87, after an April 28 launch price of US$18.00.
CPI priced 7.1 million shares at the top of its expected range of US$16-18
DynCorp International launched its IPO of 25 million shares at US$15, the low range of US$15-17 per shares. The company is now trading at US$13.85.
The defense and homeland security market still seems to be a sound bet, especially for those companies with high-tech outsourcing contracts from the US government.
Take, for example, Harris Corporation, a Florida-based company that competes in the same microwave and RF arena as CPI.
On May 1, Harris announced third quarter revenue of US$881 million, an increase of 14 per cent over the previous third quarter, with GAAP net income of US$72.5 million. Non-GAAP net income was US$81.1 million, or $.58 per diluted share, an increase of 45 per cent compared to the prior year.
On May 24, Harris was trading at US$42.64, up from a 52-week low of US$27.70 on June 5, 2005. The company’s 52-week high was US$49.78 on February 22.
On top of that, L-3 Communications announced on May 18 that it intends to bid for UK-based TRL Electronics. The bid values TRL at about GBP89.7 million (US$168.8 million).
TRL offers advanced radio and satellite communications systems to governments and defense organizations worldwide.
The business, which reported sales of GBP14.0 million (US$26.3 million) for the six months ended September 30, 2005, is expected to be slightly accretive to L-3's earnings.
L-3 was trading on the New York Stock Exchange on May 24 at USD77.00 per share, midway between its 52-week high of USD88.50 on March 21 and low of USD66.80 on May 25, 2005.
L-3 seems to be on the right track and certainly remains bullish on the defense sector.
L-3 reported strong results for the 2006 first quarter, with sales of US$2.9 billion, operating income of US$288.4 million and diluted earnings per share of US$1.13.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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