Symbol Technologies Insiders Get Active; Respironics Loses No Sleep

The recent recession has taken a significant toll on Symbol Technologies(SBL Quote). The company, which makes bar-code scanning technology, was just beginning to make inroads into the supply-chain management industry after establishing a dominant position in the retail inventory management arena. For a time, it had been one of the tech industry's bright lights, regularly boosting sales more than 20% annually over the last five years.

But after peaking at $450 million last March, quarterly sales have been slipping and are now expected to drop all the way down to $315 million in the current March quarter. That sent shares of Symbol, which already had been falling throughout much of last year, down another 30% in recent sessions.

Once investors start to look past the current weakness, however, they'll see a company that is well-positioned for an upturn in capital equipment spending, with a stock price that is too cheap given its potential.

Over the last few years, Symbol has been investing heavily in new products. The company has decided to focus on the wireless scanner market, realizing that burgeoning wireless technologies are a natural extension of the company's warehouse and retail capabilities. The company's wireless gear can help speed up and automate many industrial processes. But the gear requires a heavy up-front investment -- something companies are loath to make right now.

Importantly, Symbol faces little competition, especially after acquiring competitor Telxon several quarters back. According to IDC, Symbol controls 61% of the vertically targeted handheld device market (such as the tablets that UPS messengers carry), while Fujitsu was a distant second with about 7% of the market.

In wireless point-of-sale (POS) terminals, Symbol also is king, garnering about 42% of the worldwide market. This is more than twice the share of its closest rival, according to research firm Frost & Sullivan. And there's still room for growth -- especially in wireless.

Frost expects the wireless POS market to grow at a 35% annual clip over the next six years, driven by continued expansion of POS at retailers and the increasing use of smart cards.

Of course, Symbol's overall markets have shrunk in recent quarters due to the capital spending crunch. But recently there was a surprisingly robust figure from the national purchasing managers index. So a case can be made that a bottom in forward guidance has been reached.

A case can also be made that Symbol is still a cheap stock, even after its recent rebound. This former market leader, which used to sell for 30 to 60 times forward earnings, now trades for just 17 times projected 2003 EPS of 65 cents. And that EPS projection still assumes that the economic rebound will be slow to develop. Looking beyond 2003, this is a company with earnings power of $1 to $2 per share.

Symbol's shares also took a hit from recent turmoil in its management ranks. The company's CEO, Tomo Razmilovic, abruptly resigned a few weeks ago and was replaced by company founder Jerome Schwartz. Schwartz is widely credited with building the company up throughout the 1990s, but he stepped back from day-to-day operations two years ago.

In an effort to show that he has plans to once again boost sales and profits, Schwartz spent $1.27 million to buy 170,000 shares on the open market. Richard Bravman, a 23-year veteran at the company who was promoted to president and COO, bought 12,500 shares when the management changes were announced.

For both insiders, these were their first trades in about three and a half years. Back in late 1998, both were sellers. For Bravman, this was his first purchase ever of SBL, and Schwartz hasn't been a buyer since 1986.

An economic recovery could make these guys look like heroes, and their purchases, made for $7.40 to $7.77 per share, already are profitable. After briefly dipping below $7 two weeks ago, SBL is now trading around $11. Although quite a bit above where insiders got in, I don't think it's too late for investors with a year-long investment horizon to make money investing in this entrenched firm.

Treating Sleep Apnea

Shares of Respironics(RESP Quote) sold off in late January after it announced results for its quarter ended last December, prompting CEO James Liken and a director to invest another $103,420 in their firm.

Although the company delivered solid quarterly results on Jan. 24, management modestly lowered 2002 sales guidance. So instead of top-line growth being extremely strong this year, it simply will be strong.

Shares have since rebounded back to around $30 after investors realized that the selloff was unnecessary and that EPS guidance for 2002 was not reduced.

Respironics makes a variety of breathing aids but is primarily focused on treating sleep apnea, a condition in which people can't sleep well because of interrupted breathing from heavy snoring. The company controls some 45% of the sleep apnea market, which is growing at a 20% clip.

According to the American Medical Association, there are 20 million sleep apnea sufferers in the U.S., and another 30 million outside the U.S. But only two million have been officially diagnosed worldwide. Respironics, along with its competitors, has been educating doctors and patients alike about the condition and its treatment.

Thanks to strong demand, the company is expected to boost earnings from the $1.09 per share it posted in fiscal 2001, which ended June 30, 2001, to $1.32 per share. Earnings are expected to grow another 23% in the next fiscal year, to $1.63 a share. The stock trades for just 18 times that estimate.

By comparison, ResMed(RMD Quote), the company's closest direct competitor, with a 35% market share, trades for 34 times 2002 EPS estimates, and 28 times 2003 EPS estimates. Both companies sport similar growth trajectories.