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Zebra, Symbol, Intermec from Investor Perspective

Weeden & Co. last week issued reports on Symbol, Zebra, and Intermec, and their respective values as possible stock investments. The reports are rich in financials and investor-speak, so this article is intended as an extraction of the information most interesting to RFID Update readers.
Nov 08, 2005This article was originally published by RFID Update.

November 8, 2005—Kevin Starke, senior analyst at Weeden & Co., which produces research for institutional investors, last week issued reports on Symbol, Zebra, and UNOVA (Intermec), and their respective values as possible stock investments. The PDF reports: Symbol, Zebra, UNOVA/Intermec. Targeted at professional investors, the reports are heavy with financials and investor-speak, so this article is intended as an extraction of the information most interesting and pertinent to RFID Update readers. (Keep in mind: RFID Update is not endorsing the investment advice; readers will draw their own conclusions.)
  • The most important thing written about Zebra is that its stock is considered a buy, meaning Starke predicts the stock price will appreciate 15% or more over the next 12 months. He sees the price reaching $60 by that time. (It's about $44 now.)
  • Fundamentally, Starke sees Zebra "maintaining a solid base of business", even while large-scale orders for its products have been light. There was no mention of RFID's effect on the company's prospects.
  • Starke also considers Symbol a buy and sees the stock price rising from its current $8-10 range to $13 within 12 months time.
  • Symbol is rewarded for delivering on some of its previous commitments to "cost-cutting, new product introductions, and maintaining revenue levels", even without a fixed CEO and CFO. (Remember that back in August then-CEO Bill Nuti jumped ship for NCR. Two weeks prior, CFO Mark Greenquist had resigned. See our story.) From the report: "We think the human capital in a company resides in more than just [CEO and CFO]. [Symbol] believes it has achieved stability after years of turnover in the sales force, and that the team is beginning to generate incremental sales flow. They are getting the costcutting job done and structuring the company for improved profitability in 2006. All in all, we are inclined to stick with our Buy rating..."
  • With respect to Symbol's RFID business, it exploded from $8.6 million in the second quarter to $15 million in the third. Stark suspects this surge is a result of the Las Vegas' McCarran Airport baggage tracking system having gone live, a contract he predicts "could actually become a meaningful [revenue generator] in 2006."
  • As for who is winning the RFID game between Symbol and Intermec: "It is also interesting to note that [Symbol] would appear to have a lot more RFID-related revenue than [Intermec] at this point."
  • As for UNOVA, Intermec's parent company, Starke rates the stock a hold, which means that its price could either rise or fall by 15% over the next 12 months. However, it is also considered a short-term trading buy, which indicates that within one month the stock price is predicted to appreciate at least 10%.
  • The report notes that UNOVA/Intermec "has recorded approximately $23 million to date in deferred revenues, representing the initial license fees from its 19 licensees participating in its Rapid Start radio-frequency identification (RFID) program."
  • Starke points out that this $23 million is just from the initial license fees (remember that the Rapid Start program required companies to pay an up-front participation fee). The potential revenue from ongoing royalties has yet to kick in, which may not happen for quite a while. "[UNOVA/Intermec] management continues to downplay near-term RFID revenue opportunities," says the report.
  • While the potentially nasty legal wrangling with Symbol has been resolved (see our story), the legal expenses to work out the settlement agreement between the two companies will "remain a burden" to UNOVA/Intermec for the next two quarters.
  • Perhaps the most interesting aspect of all three reports is how Starke assesses the value of the "RFID opportunity" for UNOVA/Intermec. He assumes a $100-250 million value, in today's terms. The range is so wide because its true value is incredibly hard to predict at this early stage. "Market size estimates for RFID vary wildly, and we distrust them greatly. It is probably just better to admit being arbitrary rather than to mask arbitrariness in a projection based on market size growth, market share of the 19 Rapid Start licensees, and probable royalty rates over some time period." Given this $100-250 value of Intermec's future RFID business, the stock should trade in the $27-30 range, according to the report. It is currently in the $25-26 range.
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