Analysts Wait for the Other Shoe to Drop at Comarco
Last week’s corporate housecleaning at Comarco Inc. means there’s likely to be more bad news from the Anaheim defense contractor, according to analysts who don’t see a quick end to the company’s stock price decline.
Glenn D. Buell Jr, Comarco’s chairman, president and chief executive officer, is out, replaced by longtime board member Walter V. Sterling, 64. In addition, Peter McKane, 45, a former executive at Western Gear Inc., replaced James C. Quibodeaux as chief financial officer.
“I heard of Glenn’s resignation and I said, ‘Whoops, there goes the second quarter,’ ” said Robert Hanisee, an analyst at Seidler Amdec Securities Inc. in Los Angeles.
Hanisee said he figures that a financial loss disclosed earlier this year put Buell on notice to improve results.
Far From Certain
His resignation, Hanisee said, could signal one of two things: that Comarco’s audit committee found other problems or that a sustained earnings turnaround is far from certain.
Comarco, a provider of defense-related computer systems and services, reported a net loss of $1.1 million on sales of $78 million for the fiscal year ended Jan. 31. After three profitable quarters, the company reported an unexpected loss of $2.9 million during the final three months of the year and attributed the deficit to an overly aggressive expansion program and lax financial controls.
The company earned $254,000 during the first quarter of its 1988 fiscal year, only half as much as a year earlier, and some analysts remain unconvinced that the small profit is a sure sign that the company’s problems are behind it. In the opinion of Gail Scully, an analyst at Argus Research Corp. in New York, Comarco’s financial problems were too significant to be eliminated in one quarter.
If anything, the management changes may make it more difficult to estimate Comarco’s future earnings. Hanisee said he had no idea what to expect for the second quarter, which ended in July, and he said any analyst offering a forecast would have to pull numbers out of the air.
Comarco observers said the appointment of Sterling and McKane was wise because Sterling is a longtime Comarco executive, having served for five years as chairman, and McKane has a solid reputation at a bigger company.
Susan Pitts, an analyst at Alex Brown & Sons Inc. in Baltimore, said she assumed Sterling would only remain in charge until he could either find a successor for Buell or sell the company.
Would Sterling consider a possible sale?
“Nope. No way,” he responded, saying that the company’s future is bright. Sterling acknowledged that he would be looking for a replacement for Buell, but he said the search would probably take at least a year.
Sale Believed Unlikely
Hanisee agreed that a sale is unlikely. “It’s a natural presumption to say he might sell the company, but it doesn’t make sense,” he said.
In the eyes of a potential bidder, a major problem would be calculating the company’s value. Comarco’s five-year contract to provide engineering services to the U.S. Naval Weapons Center at China Lake is being re-bid, and Comarco would be worth less if that job were lost.
So far, investors don’t seem to be anticipating a possible sale or rapid earnings improvement. Comarco closed Friday at $6.75 on the over-the-counter market, down 50 cents for the week. Less than a month ago, it was trading at $8.50.
No end to the price decline is expected anytime soon. At current prices, the total market of Comarco’s 2.9 million shares is $18 million, making it a potential takeover candidate, Scully said.
Lately, stockholders have been watching the buying of Alan Parsow of Elkhorn, Neb. An investment partnership in which Parsow is the sole general partner now has a 6.9% stake in Comarco.
In filings with the Securities and Exchange Commission, Parsow said he had no current intention of seeking control of Comarco. In a telephone interview, Parsow wouldn’t say if he intends to keep buying.
Although Parsow isn’t a professional analyst, he sees Comarco as undervalued. He hasn’t sought a position on the board, but he said he would like to be closer to management.
“He’s an investor, and he’s interested strictly in making money, but his two filings give people an idea there is value in the company. They think something will happen sooner, not later,” Pitts said.
Boone Pickens Syndrome
“A lot of these guys have this thing that they’re Boone Pickens,” said Hanisee. He said Parsow might like to force a sale of the company, but that doesn’t mean he would be able to.
“Right now, the stock reflects acquisition potential,” Pitts said. But it is still worth a lot less than it would be if earnings news were positive--an event analysts expect, just not anytime soon. “A lot of people would want me to be saying the company will earn 50 cents this year, but I can’t,” Pitts said.
Scully said she recommended the stock to long-term buyers because the company has proven it can turn a profit over the long term.
Pitts recommended purchase only for speculators because of potential downside risks. Hanisee advised holders to hang onto the stock, but he stopped short of recommending a purchase.
