First Montauk Securities Corp. Announces Investment Opinion on Iomega.
NOTE TO EDITORS: The following is an investment opinion issued
by First Montauk Securities Corp.
RED BANK, N.J.--(BUSINESSS WIRE)--Sept. 11, 2000
First Montauk Securities Corp. Issues Research Update on Iomega
Corp. - Maintaining short and long term strong buy ratings (1) and
raising stock price targets
First Montauk Securities Corp., a wholly-owned subsidiary of First Montauk Financial Corp., (OTC OTC
See over-the-counter market (OTC). : FMFK) today released updated research on Iomega Corp. (NYSE NYSE
See: New York Stock Exchange :IOM IOM
See: Index and Option Market ). The update reiterated the opinion of the initial research issued in February 1999, recommending Iomega as a strong buy (1) long term, strong buy (1) short term, for accounts capable of assuming the risks associated with a lower price speculative security. A full copy of the report can be found below:
IOMEGA CORPORATION (NYSE:IOM) Rating: Short term: Strong Buy (1) Long term: Strong Buy (1) Risk: Speculative Shares outstanding: 270,543,000 Price as of 9/8/00: 4 3/8 Market Capitalization: $1.18 Billion 52-wk range: $2 7/8 to $6 3/8 Book Value: $1.53 Dividend: nil Yield: nil Earnings Q1 Q2 Q3 Q4 FY'00 FY'01 Projected .12a .07a .08e .12e .39e .51e '01e '00e '99 '98 '97 '96 Sales 1.71B 1.42B 1.53B 1.69B 1.74B 1.21B EPS .51 .39 .13 (.17) .42 .21 Projected 5 year CAGR: 35%
Iomega is one of the major players in the removable storage industry. We believe that the company is in arguably ar·gu·a·ble
1. Open to argument: an arguable question, still unresolved.
2. That can be argued plausibly; defensible in argument: three arguable points of law. the best position to capitalize on Cap´i`tal`ize on`
v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. the personal storage trends in computing computing - computer going forward. As stated in our February upgrade of the stock, we believe that Iomega has found the leader (Bruce Albertson) with the vision necessary to fully capture the opportunity ahead. The past six months have demonstrated our analysis correct, and while we may have been ahead of the rest of the street, we are very pleased with the progress and the results to date. Iomega is winding up the 'restructuring phase' needed to properly align the company to achieve its goals, and they are now entering in the next few months the dynamic growth phase that we predicted they were capable of. Armed with a cash hoard of $350 million, new products scheduled for release, new marketing initiatives, and most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent"
above all, most especially lower costs, Iomega is set to 'once again' capture the attention of the investing community.
For the last 18 months, Iomega has been balancing the needs of rightsizing Selecting a computer system, whether micro, mini or mainframe, that best meets the needs of the application. their operations to handle their explosive growth over the previous 4 years ('95-'98) with the marketing push needed to fully leverage their dominant position in the removable storage category. They had to attack manufacturing deficiencies, pricing issues, new product development, and lack of marketing channel development. They needed management that was not only capable of addressing these issues, but also had the vision necessary to understand what their strengths and weaknesses were. As demonstrated in the past 6 quarters of increasing quarter over quarter earnings, Iomega has successfully put their financial house in order. They have built a very strong balance sheet and are generating cash at an almost unbelievable rate (up $142 million in the first half). In addition, they have refocused research and development on producing new products and upgrading existing products that are able to shift momentum back to their strength of the Zip technology and Zip brand name. We believe that this restructuring process is now complete, and by Q4 the realization of the improvements should be evident.
One of the biggest questions over the last 3 years was whether Iomega has seen its better days in terms of sales Terms of sale
Conditions under which a firm proposes to sell its goods or services for cash or credit. growth. While they had a tremendously successful product in Zip (smaller success with Jaz), many investors were cautious about whether Iomega could ever leverage that success into sustained growth again. Despite the facts that Zip now has almost 40 million drives installed and almost no direct competition, the revenue decline was real and many incorrectly assumed that this was a result of a dying product line. What they didn't realize though, was the drop in revenues was a due to a complicated combination of poor management, bad pricing models, inefficient marketing Inefficient Market
A theory which asserts that the market prices of common stocks and similar securities are not always accurately priced and tend to deviate from the true discounted value of their future cash flows. This theory opposes the efficient market hypothesis. , lack of channel development, and misdirected R&D.
The 'New Iomega' under Albertson and his team have reversed the past missteps and transformed the company completely. While maintaining and strengthening the solidity so·lid·i·ty
1. The condition or property of being solid.
2. Soundness of mind, moral character, or finances.
Noun 1. of Zip as a 'platform', Iomega is now utilizing the 'branding' of Zip as a weapon. They have stormed into the CDRW See CD-RW. arena with a ZipCD brand, and captured 2nd place in the retail market with their offerings in the last year. They have renamed Clik! to PocketZip (or PZ), and have successfully signed up 10 different brands for MP3 players A digital music player that supports the MP3 format, which was the audio format that started a revolution in online music downloads and distribution. All portable music players, the iPod being the most popular, support MP3 along with one or more other audio formats. utilizing this format. We believe that the successful recognition of Zip as a 'brand name' will add significantly to growth in the future, as Iomega correctly leverages its powerful brand into additional new avenues such as online storage and web-delivered music.
Another major growth driver starting in Q4 will be the re-engagement of Zip to the OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and market. Iomega intentionally pulled back from this market in the past year to correct pricing errors of the past. In a misguided mis·guid·ed
Based or acting on error; misled: well-intentioned but misguided efforts; misguided do-gooders.
mis·guid effort to 'save' the company's growth through 1998, past management dramatically slashed prices to OEM partners to unsustainable levels that resulted in a large drain of profit margins. New management identified this pricing problem, and decided to stop this practice until cost reduction initiatives would allow them better control of profit margins. The good news is that we believe this pendulum is about to swing back in the other direction. Iomega has successfully brought their costs down and now they are ready to leverage Zip once again through the OEM channel. While we think this will positively impact revenues for Q4, we think it will be even more powerful for 2001.
New products will also play a major role in growing the 'New Iomega'. Iomega plans to roll out several new products by the end of the year. The two most significant new products will be HipZip and FotoShow. HipZip is Iomega's initial entry into the fast growing MP3 or digital audio player See digital music player, digital media hub and digital media server. market. Utilizing PocketZip 40-megabyte disks, HipZip offers a compelling alternative to flash-based players. We believe advance orders of the well-designed HipZip are exceeding Iomega's initial projections, and look for this product to have very positive contributions to the revenues starting in Q4. The other major product release is FotoShow, which is an enhanced 250-megabyte Zip drive See Zip disk.
(hardware, storage) Zip Drive - A disk drive from Iomega Corporation which takes removable 100 megabyte hard disks. Both internal and external drives are manufactured, making the drive suitable for backup, mass storage or for moving files between computers. designed to take digital photography away from the PC. With FotoShow, digital camera users will be able to download their pictures from expensive flash cards to inexpensive Zip disks A 3.5" removable disk drive from Iomega. Zip disks come in 100MB, 250MB and 750MB varieties, with the latter introduced in 2002 using USB and FireWire interfaces. The 250MB drives, introduced in 1998, also read and write 100MB disks. , and then view the pictures immediately on their TV sets. While we don't expect FotoShow to be quite as big a revenue contributor as the HipZip, the disk sales added by it could be significant, and it also adds to further proliferation proliferation /pro·lif·er·a·tion/ (pro-lif?er-a´shun) the reproduction or multiplication of similar forms, especially of cells.prolif´erativeprolif´erous
n. of the Zip platform. It also sets the stage for future Zip-based cameras, which would be a very important revenue driver.
Other new products and services recently announced by the company are:
- A sleek new external ZipCD featuring a smaller form factor - An external USB drive for Neon Technology set-top boxes - QuickSync 2 software for automatic backup - An online storage partnership with SkyDesk for internet storage
While we think the company will be challenged to grow revenues year over year in Q3, we think they will grow sequentially from Q2 '00. However, we are confident that the new marketing focus, re-engagement of OEM drive makers, and new product rollouts will positively affect sales trends starting in Q4. The 'New Iomega' is real and credibility is returning, and we think the market may start to anticipate this fact before the actual numbers indicate it.
- Iomega's market capitalization Market Capitalization
A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. at $4 3/8 is $1.18 Billion
- Iomega has $354 million in cash and is trading at just over 3.3
- Iomega just announced a buy back of $150 million
- Iomega also announced they were retiring the remaining $45.5
million in debt
- Iomega is projected to triple earnings from $0.13 to $0.39
Iomega handily hand·i·ly
1. In an easy manner.
2. In a convenient manner.
Adv. 1. handily - in a convenient manner; "the switch was conveniently located"
2. beat our Q1 and Q2 earnings projection of $0.03 in each quarter with actual earnings of $0.12 in Q1 and $0.07 in Q2. In fact, it is noteworthy that they earned in the first 6 months what we had predicted for the year ($0.19). We are upgrading our projection for Q3, Q4, and FY2000 to $0.08, $0.12, and $0.39 from ($0.04, $0.09, and $0.19). We are projecting Q3 revenues of $328 million and Q4 revenues of $445 million. For FY2001, we are instituting a yearly forecast of $1.71 billion in revenues (+20%), and $0.51 in earnings (+30%).
By demonstrating the ability to control costs and increase margins, Iomega has put 'credibility' back into the plus category as it relates to valuation. However, due to the fact that they have not grown sales, the market is still seriously penalizing them with a low PE ratio. Currently, the market is giving IOM a paltry pal·try
adj. pal·tri·er, pal·tri·est
1. Lacking in importance or worth. See Synonyms at trivial.
2. Wretched or contemptible. 11.2X PE on '00 earnings and an even lower 8.6X PE on '01. We believe this gives investors a rare chance to invest in an advantageous risk/reward situation at the inflection point Inflection Point
An event that changes the way we think and act.
-Andy Grove, Founder of Intel.
For example, the fall of the Berlin Wall was an inflection point in global politics and the commercialization of the Internet was an inflection point in technology. of a turn-around, where the opportunity for impressive growth is just around the corner. We are maintaining our short-term opinion on the stock (1) Strong-Buy and are upping our short-term stock price target to $12 (from $10). We are also maintaining our long-term opinion of the stock (1) Strong-Buy and upping our valuation level to $22 (from $18). Both ratings are for speculative risk accounts.
Summation summation n. the final argument of an attorney at the close of a trial in which he/she attempts to convince the judge and/or jury of the virtues of the client's case. (See: closing argument)
As we mentioned in our February update, we believe that the management of Iomega under Albertson will deliver on the potential of the 'New Iomega'. They have cut costs, managed the balance sheet, made strategic changes to marketing efforts, and reinvigorated re·in·vig·o·rate
tr.v. re·in·vig·o·rat·ed, re·in·vig·o·rat·ing, re·in·vig·o·rates
To give new life or energy to.
re product lines. We have always believed in the market potential of their products and in their competitive position within the industry. They lacked vision to execute on this promise, but Albertson has re-shaped the company and driven them to the point where we believe that they will now re-emerge as a force in the upcoming digital world. Growth is coming to Iomega, and with it we think our long held belief that this stock is seriously undervalued Undervalued
A stock or other security that is trading below its true value.
The difficulty is knowing what the "true" value actually is. Analysts will usually recommend an undervalued stock with a strong buy rating. will be evident again to the market. We are confident in Albertson's vision and abilities, and believe that investors will be amply rewarded.
This communication reflects our opinion as to the securities mentioned herein, but is neither an offer to sell them nor a solicitation solicitation
In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual of an offer to buy or sell them. Any recommendation contained in this report may not be suitable for all investors. Moreover, although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. First Montauk Securities Corp. may make markets or have positions in the securities mentioned herein (or options with respect thereto) and may have performed investment banking services for the issuers of such securities. In addition, employees of First Montauk Securities Corp. may have positions and effect transactions in the securities or options of the issuers mentioned herein and may serve as directors of such issuers. Copyright 2000. All rights reserved by First Montauk Securities Corp. Member NASD/SIPC.