Whittaker Looks Ahead
Whittaker Corp. chief Joseph Alibrandi made a lot of money for his shareholders in the late 1980s when he began dismantling the former mini-conglomerate. Now, the 61-year-old Alibrandi is focusing on Whittaker’s next phase--as a much smaller firm but a very profitable one, he says.
Los Angeles-based Whittaker’s stock closed last week at $11 a share, up from $10.625 the previous week, despite the broad market’s selloff. Since Jan. 1, the stock has risen 35%.
Investor interest in the stock picked up again last week after the firm reported earnings for the quarter ended April 30. Though Whittaker, now an aerospace and biotechnology company, reported a loss from continuing operations of 40 cents a share, that represents the last of its transition quarters, after its June, 1989, recapitalization. Under Alibrandi, Whittaker borrowed heavily to pay out a $40-a-share dividend. To repay the debt, Alibrandi has sold pieces of Whittaker, continuing a 1986 divestiture plan. The big piece sold this year: specialty chemicals, to Morton International for $220 million.
Alibrandi said the divestiture plan is “essentially done” and he’s now focused on running the firm--and hunting for acquisitions in Whittaker’s two core areas. The company should return to profitability this quarter, thanks to a big drop in interest expenses and continuing healthy sales growth in its two lines:
* In aerospace, Whittaker is a leading producer of controls, radar systems and cable for commercial and military jets. Although Alibrandi admits that defense cuts will affect Whittaker, “defense is a smaller and smaller part for us” in key businesses such as controls, he said. Excluding one-time charges, aerospace operating profit rose 11% in the latest quarter; revenue rose 13%.
* In biotech, Whittaker makes diagnostic kits for blood testing, living tissue cultures and tissue-growing solutions. Operating profits were up 10% in the latest quarter on a 12% revenue rise. “We see tremendous opportunity here,” Alibrandi said.
In fiscal 1991 (beginning next Nov. 1), some analysts have estimated that Whittaker could earn about $1.50 a share on revenue of $220 million. If that’s accurate, Whittaker stock, at $11 now, is selling for just seven times 1991 earnings.
A handful of institutional investors own big chunks of Whittaker’s shares, leaving relatively little free to trade. One of those owners is Michael Price, who runs Heine Securities in Short Hills, N.J. Heine had about 600,000 of Whittaker’s 8.3 million shares at March 31. Price’s discipline is searching for strong companies that generate healthy cash flow, and Whittaker fits that bill, he said. “We think the stock is worth $15,” he said.
Alibrandi, who himself owns 10% of Whittaker’s shares, says he’s “aiming to prove Price is too low” in his estimate.
Retail Sell Signal? It had been a great spring for retailers’ stocks--until last week. May sales reports came in disappointing, partly because of cold weather across much of the country.
The ensuing stock selloff was brutal for a few retailers in particular. Few were hit harder than Gap Inc., which plunged 15.3% for the week to $56.125.
Thomas Tashjian, retail analyst for Seidler Amdec Securities in Los Angeles, says he told clients to take profits in Gap on June 1. Gap had an aggressive sales plan for the first half of the year, Tashjian says, but the May cold snap meant low sales of Gap shorts and T-shirts.
Now, though “we are getting some good signals on early June sales, they’re not at a pace to make up for the shortfall” at Gap, Tashjian said. Translation: Big markdowns are coming.
But Tashjian still sees Gap earning $3.60 a share this year. That gives the stock a price-to-earnings multiple of about 15 now, which is about the market average. Tashjian figures that makes the stock a buy for anyone with a long-term perspective. This isn’t the first time Gap has stumbled, but its managers are some of the savviest in the business--they just can’t predict the weather.
At the other end of the retail spectrum, L.A.-based Carter Hawley Hale (Broadway, Weinstock’s, Emporium) saw its stock jump 20% for the week, to $6.625. It wasn’t Carter Hawley’s May sales report that did it, because sales were lousy. Instead, analyst Edward Weller at Montgomery Securities said a rumor was going around that the firm wants to sell its Thalhimers department stores in the East. Carter Hawley wouldn’t comment. In any case, analysts warn that this debt-heavy company remains a stock for speculators only, because it’s still bleeding red ink.
RETAIL DISCOUNTING
Fri. Loss for week: Stock close Points Pct. Gap Inc. $56 1/8 -10 1/8 -15.3% Limited 46 1/4 -3 7/8 -7.7% Home Depot 56 3/4 -4 1/2 -7.4% Dayton Hudson 72 1/8 -3 3/8 -4.5% Price Co. 37 -1 1/4 -3.3% May Dept. Stores 55 3/4 -1 3/4 -3.0%
