AVX: A Pristine Balance Sheet

How often have you seen company management warn that analysts' estimates need a haircut? I'd put that in the "rarely, if ever" category, but that's exactly what AVX Corp. (AVX - commentary - Cramer's Take) recently did, stating that it sees fourth-quarter revenue coming in at $315 million, 15% below early December consensus estimates.

Perhaps the company is trying to avoid a big surprise that would cause shares to gap down sharply on announcement. Nevertheless, this certainly got my attention, and prompted a deeper dive.

Myrtle Beach, S.C.-based AVX manufactures electronic components (capacitors, resistors, etc), certainly not a stellar business in this economy, which explains the sales warning. The company is also 71% owned by Japanese company Kyocera (KYO - commentary - Cramer's Take).

Third-quarter sales were essentially flat at $400 million, but net income jumped 35%. While operating margin improvement (17.2% vs. 15.9%) explains some of the growth in the bottom line, the majority was due to interest income ($13.1 million vs. $6.1 million) from the company's relatively large amount of cash and investments.

If fourth-quarter sales register $315 million as management suggests, the company may still turn a profit, albeit a small one. Consensus estimates are now calling for fourth-quarter earnings per share of 9 cents after factoring in the company's recent warning.

What is most impressive about AVX at this point is the strength of its balance sheet. As of Sept. 30, the company had $560 million in cash and $40 million in cash and short-term marketable securities, or $3.52 per share. AVX also lists $204 million, or $1.20 per share, in long-term investments, which are primarily U.S. government and agency securities. AVX also has no debt and pays a dividend currently yielding a respectable 2.1%.

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At the time of publication, Heller had no positions in the stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.