Back From the Brink of Insolvency : Analyst Sees General Automation Profit
It has engineered an escape from near insolvency, and now General Automation Inc. is about to offer investors further proof of its new lease on life, predicts analyst Robert Sullivan of PaineWebber Inc.
The Anaheim computer maker has yet to report annual results for its fiscal 1986--the delay resulting from changing the end of its fiscal year from July to June. But the September quarter, the first of General Automation’s fiscal 1987, will feature something new and different: an estimated operating profit of two cents a share.
Based on General Automation’s 4.8 million shares currently outstanding, that translates into net earnings of $96,172. Though modest, the results are encouraging because they compare with a net loss of $1.2 million for the corresponding quarter last year.
For all of fiscal 1987, Sullivan estimates the company should post profits of 50 cents a share, or about $2.4 million, all from operations. For fiscal 1986, Sullivan expects General Automation to report earnings of 91 cents a share--or about $4.3 million--but only because of an extraordinary gain.
Capital Stock Sale
During the fiscal fourth quarter, General Automation is expected to report a one-time gain of $9.5 million from its capital restructuring program. “Without that gain, they would have had a loss of 70 cents for the quarter and $2.12 for the year”--an operating loss of about $10.1 million, Sullivan said.
A General Automation spokesman agreed that the company is posting a profit only because of the extraordinary gain in the fourth quarter. He declined to estimate the year-end results. General Automation, he said, has until Oct. 28 to file its annual financial report.
The company avoided insolvency by cutting back on operating costs and paring down its long-term debt through agreements with its lenders. It then eliminated that debt altogether with a $6.2-million stock offering in August and now has a “strong, debt-free balance sheet,” Sullivan said. In the past, customer concerns about General Automation’s weak financial conditions often hindered sales, he said.
With two new business computer systems recently added to its “Zebra” product line--both of which come with price tags below the $118,000 to $250,000 General Automation charges for its mainstay Zebra 7820--Sullivan said the company should be able to “generate significant new orders” during the current year.
‘Attractive Stock’
So, with all of this apparent good news, is Sullivan recommending that investors load up on General Automation stock, which closed Friday at a bid price of $4.125 a share?
Technically, no.
Because PaineWebber underwrote the August stock offering, the giant investment banking firm will neither tout General Automation as a “buy” nor advise its clients to sell the stock, Sullivan said in an interview.
Although the stock is still speculative, particularly because General Automation needs to establish a track record for earnings, it is nevertheless “quite an attractive stock for aggressive investors,” Sullivan said.
“We are cautiously optimistic about the stock market,” said Sullivan, who believes that a strong market and kept promises at General Automation could eventually translate into a price of $6 a share.
More bullish is Brent Berry, a vice president at Bateman Eichler, Hill Richard, who not only is recommending the stock, but adding it to his own portfolio. In fact, he says, the two cents a share PaineWebber’s Sullivan is estimating for the quarter just ended may even be a bit low.
“I’m looking for black ink, but I’m not sure how much,” he said. “Everyone is being cautious, so I hope Mr. Sullivan’s estimates are on the conservative side.”
“How many companies do you have that are trading at $4 a share and might be earning 40 to 50 cents a share?” remarked Berry, who added that General Automation has no debt and has reported all the bad news there is.
“I think there is very little downside risk,” he said. “The stock is a good value at the price, and I’m recommending it.”
