MSI Data, Vying for Army Job, Looks Good in Earnings, Market Growth, Analysts Say

MSI Data is in the running for a $50-million Army contract, which is one reason the company’s stock has gained 45% in value since the start of the year, analysts say.

But there are plenty of other reasons for investors to be interested in the Costa Mesa-based maker of hand-held, data-entry computer terminal systems, which are used by supermarkets, department stores and industry to record information electronically.

After losing a competitive edge earlier in the decade, MSI has fought back and won big contracts the past two years. This year is the company’s best ever, and the market for MSI’s products could grow at a 25% rate in each of the next several years.

Stock on the Move

MSI stock, which traded as low as $13.50 per share in November, opened 1988 at $18.375 and closed Friday at $26.75, up $1.75 for the week.

The company is one of three finalists for a three-year contract to provide the Army with electronics equipment for non-tactical, administrative use. Telxon, an Akron, Ohio, firm that won the Army’s last contract, and Intermec in Lynnwood, Wash., are the other finalists. The contract winner is to announced soon, perhaps this month.

“If MSI wins the contract it will be a big bonus, but because they weren’t the last to have it, not getting it won’t hurt,” said Jonina R. Lerner, an automation and manufacturing-industry analyst at Eberstadt Fleming, a New York-based investment banking firm.

“MSI has proven it can compete,” Lerner said.

She added that MSI proved itself in 1986 by winning a 5-year, $50-million Army contract for tactical or “battlefield” use of the data-entry devices.

And the company’s sales and reputation were boosted even more last summer when Sears named MSI as its preferred vendor for hand-held data-entry systems.

Under terms of its contract with Sears, MSI is not allowed to publicize the two-year agreement. But analysts speculated that sales from the Sears contract have been worth more than $3 million so far.

Just three years ago, MSI was a “beat-up story,” and most analysts lost interest in the firm, according to E. Lawrence Hickey, an electronics analyst at First Analysis, an investment-banking firm in Chicago.

The biggest blow came in 1984 when MSI lost the Army’s non-tactical contract to Telxon. For years, MSI had been at the top in the hand-held, data-entry device business. But the company ignored competitors and sales stagnated, analysts said.

Shortly after losing the contract to Telxon, MSI hired Charles Strauch, who had a reputation for bringing new life to companies. Strauch brought in new management, cut costs and introduced new products.

MSI lost $1.5 million on $56.2 million in revenues for fiscal 1985, which ended March 30, 1985. But for fiscal 1987, the company earned $1.3 million, and revenues increased 13% over the previous year to $70.7 million.

For the first nine months of fiscal 1988, MSI earned $3.4 million on revenues of $66.2 million.

Earlier this month, MSI declared a 3-for-2 stock split, which Lerner said is a “bullish” move that indicates the company expects to do well in the fourth quarter.

Earnings Could Be $1.47

For all of fiscal 1988, Hickey said he expects MSI to earn $4.8 million, or $1.40 for each of the company’s 4.5 million shares outstanding.

Lerner said earnings for the year could be as high as $1.47 per share.

Based on the growth of MSI’s market, the company’s ability to compete and room for improvement in profit margins, Robert M. Johnson, a technology-industry analyst at Rotan Mosle brokerage firm in Houston, said earnings could reach $1.80 per share for fiscal 1989.

MSI’s recent stock run-up has made shares a bit pricey, and the stock might pull back a little from last week’s all-time highs, Johnson said.

“Long-term,” Lerner said, “MSI looks very nice.”