DailyTrends.com Company of the Week: White Electronic (WEDC)
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I have been personally following this company for many years. Now the time has come for me to showcase it to members as a potential buying opportunity.
Many of the products and designs White Electronic creates and ships are for military purposes to the naked eye. But a closer look would suggest that WEDC has quite an influence on several different segments. White has a microelectronics division that produces memory and microprocessor modules designed to withstand adverse conditions in aerospace, and the telecommunications industry.
White also makes specialized liquid crystal display panels for rugged conditions and used by customers such as Garmin and GE. In 2003, the Company purchased Interface Data Systems (IDS), which makes specialized keypads, flexible circuits, control panels, and other devices.
The CEO Hamid Shokrgozar has been my idol for many years. I remember distinctly five or six years back when he was promoted to the top spot at the company.
From his inception, the Company has prospered and expanded in several different niches.
He was kind enough to spent time this week so that members can get a better understanding of White moving forward.
Chris Lahiji (DailyTrends.com): Hamid, what has happened to the Company since you became the CEO? How many corporations have you acquired?
Hamid Shokrgozar (CEO of White): I have been the CEO of White Electronic Designs Corp since 1998. In that time we have achieved a 24.8% compounded annual revenue growth rate in a very difficult period for the high technology industry. The company has produced consistently profitable results and we have a very strong financial foundation with upwards of $40 million in cash and cash equivalents and no long-term debt. From a bottom-line perspective we have experienced a level of volatility given the extended industry downtrend of recent years, but we are nevertheless pleased with the solid and consistent profitability that we have achieved during this challenging period. With regards to acquisitions, we have made three during my tenure: Electronics Designs Inc. in 1998, Panelview in 2001 and Interface Data Systems in 2003. All of these transactions have been integrated and are meaningful contributors to our operations.
Chris Lahiji: How has the microelectronics industry changed within the last 5-10 years? Who is currently your largest customer?
Hamid Shokrgozar (CEO of White): Clearly, the strides made in the microelectronics business in the past decade have been nothing short of astounding. The ability to create advanced chip sets that reside on smaller and smaller platforms with calculating and processing capabilities that grow geometrically every few years is a testament to the creativity, intelligence and dedication of the entire industry. That having been said, there is not any question that we still face a number of important challenges that impact the ability of the industry to achieve a level of sustainability in its sales and marketing performance. We still are susceptible to boom and bust cycles that sap a lot of energy and cause a lot of heartache within the industry. In recent years we have been plagued with the Asian Flu, the Y2K hysteria and we are still feeling the effects of the dot.com fiasco and the accounting scandals in the early years of this new century. The economic theory of supply and demand continues to be the driving force in this industry. Unfortunately, we have not yet adequately learned how to properly balance supply with demand in certain critical time periods, the consequence of which are these wild fluctuations in the market from time to time that cause enormous upheaval in the industry.
At the end of the day, this is an exciting industry to be in. It challenges your ability as an engineer, as a sales and marketing professional, and as a corporate manager.
With regards to largest customers, we have a much diversified group of customers within both our microelectronics and display segments. Last year no one customer exceeded 6 percent of corporate sales and we feel that is good for the business. We have strong sales to a number of leading home appliance makers. They utilize a number of our keypads and other critical components that make their household appliances among the very best and among the most popular in the world. Likewise, we have a large number of customers in the microelectronics segment both in the commercial markets and the military contractor markets. We are very comfortable with such a wide array of diversified customers.
Lahiji: How many years has White been profitable? Is your business seasonal or pretty constant?
Hamid: During my time at the Company we have been solidly profitable each year with the exception of 1999. In our most recent fiscal year we did experience a slowdown in U.S. military sales that did have a meaningful impact on our bottom-line results. However, we made significant progress during last year in generating new commercial business. With regards to seasonality you could say that there is a component of seasonality in our appliance business primarily around the holiday seasons.
While there is no consistency to these purchasing patterns we do experience them on a consistent enough basis to regard them as seasonal type events.
Lahiji: Moving forward, are you looking to grow organically or through acquisitions?
Hamid: We are very much committed to primarily growing our business organically, but taking advantage of strategic acquisition opportunities as they become available. Our acquisition philosophy is to acquire assets at reasonable multiples, that can fit neatly into existing operations and that can be accretive in a very short period of time. While we do not intend to make acquisitions our primary growth platform, we do recognize the value of taking in operations that can enhance our ability to become more efficient operationally, to become more profitable and to gain market share.
Lahiji: Finally, why do you think the stock has struggled in the last year? What is the Company currently doing to instill lost confidence in shareholders again?
Hamid: Clearly, investors have reacted to the slowdown in military spending that the Company experienced last year. We still have not seen any signs that indicate to us that an acceleration of spending to more traditional levels is imminent. We are confident that an uptick in military spending is an eventuality; we just cannot pinpoint when that will be. One of our goals for 2005 is to continue to build on the momentum that we achieved last year in attracting new commercial customers in both our microelectronic and display segments. As we continue to make progress in building our commercial business lines, we can achieve that much more leverage when the military business resumes more traditional sales volumes. In the final analysis, we believe that this strategy will drive valuation and confidence within our shareholder base. We are very pleased with the progress that is being accomplished.
END OF INTERVIEW
I think that if one is patient here at White (WEDC), then the reward in my opinion will be a nice 25-50% gain in the next 12 months. The Company has $85 million in net tangible assets, over $40 million in cash, no debt, and has Royce as the largest institutional shareholder. I personally own shares in the company.
All very positive signs in my eyes, but I have not stopped there.
A $53 million dollar backlog and a positive book to bill ratio (important indicator for semiconductor stocks) are quite substantial as well.
Bottom line, I am looking for a basing at these current levels, and with improvement in margins, stock should see $7 a share in my opinion.
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