Measurement Specialities Stock Has Room to Run

Source: Thinkstock

Measurement Specialties Inc. (NASDAQ:MEAS) is a global designer and manufacturer of sensors and sensor-based systems. Its sensor products comprise pressure components, sensors, and transducers, as well as load cells, linear variable differential transformers, rotary position transducers, and magneto-resistive sensors and encoders. It also produces long stroke linear displacement, magnetostrictive, and rotary sensors; accelerometers; relative humidity sensors; fluid monitoring sensors; thermistors and resistance temperature detectors; and pulse oximetry and X-ray detection sensors.

Its sensors are used for engine and vehicle, medical, general industrial, consumer and home appliance, military and commercial aerospace, environmental water monitoring, and test and measurement applications. The company also turns a nice profit and its shareholders have been rewarded handsomely, rising 97 percent in just two years. This rise is attributable to continued performance and delivery of higher earnings each year. But is the stock a buy at current levels given its performance?

In its most recent report, the company reported an increase in consolidated net sales of $65.7 million, or 18.9 percent, to a record $412.7 million for the 12 months ended March 31, as compared to last year. Excluding sales attributed to the RTD, Spectrum and Sensotherm acquisitions of approximately $42.3 million for the year ended March 31, 2014, and $7.8 million in sales for RTD for the year ended March 31, 2013, organic sales increased $31.2 million, or approximately 9.2 percent. For the 12 months ended March 31, the company reported net income of $37.8 million, or $2.26 per diluted share, as compared to net income of $34.2 million, or $2.12 per diluted share last year.

The company reported an increase in consolidated net sales of $15.9 million, or 17.9 percent, to $104.9 million for the quarter ending March 31, as compared to the corresponding period of last year. Excluding sales attributed to the Spectrum and Sensotherm acquisitions of approximately $6.5 million for the quarter, organic sales increased $9.4 million or approximately 10.6 percent. For the three months ended March 31, the company reported net income of $9.3 million, or 56 cents per diluted share, as compared to net income of $9.1 million, or 56 cents per diluted share, for the same period last year.

Several items recorded during the 12 months ended March 31, 2014, and 2013, impacting the company’s net income, including gains relating to the fair value adjustments to acquisition earn-outs, restructuring charges, overlapping costs with site restructurings and impairment of assets held for sale. The net impact to earnings after income taxes for the year ended March 31, 2014, and 2013, for these adjustments was an increase of $8.1 million and $5.1 million, respectively, or approximately 49 cents and 31 cents, respectively, per diluted share.

Frank Guidone, the company’s CEO, said: “We are pleased with our fiscal 2014 performance. With strong 4th quarter bookings, momentum on development programs and contribution from the Wema acquisition announced yesterday, we believe we are well positioned to deliver solid growth and strong earnings performance in fiscal 2015, with acceleration in fiscal 2016 through integration and synergies. While Wema will be initially dilutive to EBITDA margin, we are confident through growth and synergies it should perform in-line with our base business.”

He continued: “We expect Wema to add approximately $100 million in sales for the remaining 10 months of fiscal 2015, and are therefore raising fiscal 2015 sales guidance to approximately $540 million. We expect fiscal 2015 Adjusted EBITDA margin of approximately 19 percent of sales, with improvement in margin in fiscal 2016 as synergies are realized.”

Looking ahead, the stock has pulled a back a bit this year from its highs. Given the continued performance, I think the stock has room to run. It has a price-to-earnings multiple of 28, which given its growth rate is warranted, and I would argue, could expand further. The company does not pay a dividend yet, but as earnings improve this could change. Given the solid management team, the good quarter, and the year-over-year improvement, I think the stock is a good growth addition to help balance any portfolio, and I assign a $75 price target.

Disclosure: Christopher F. Davis holds no position in Measurement Specialties and has no plans to initiate a position in the next 72 hours. 

More From Wall St. Cheat Sheet: