Richardson Electronics in the right place at the right time
beanie Richardson Electronics (NASDAQ: RELL) She caught our eye in a recent earnings cycle when she reported earnings. Consolidating trends across all end markets were driving the results and suggesting continued strength in the current quarter. Now, with the Q4 results in the bag, it’s clear that faith was not misplaced. The company has produced record revenues and profits on an increasing cumulative basis driven by the need for electronic components in the communications/5G market, healthcare, and semiconductor manufacturing among others. In our view, Richardson is a small company with a big future ahead and attractive dividends to boot. If you are looking for a little exposure to today’s trends in electronics, this is a good stock to own.
Richardson Electronics Exceeds Expectations as Backlog Increases
Richardson Electronics beat all expectations in its fiscal second quarter but that doesn’t say much because no analysts are covering this stock at the moment. The only expectations are our expectations and that only matters. Regardless, the company reported $54.0 million in consolidated revenue for a gain of 37% year-over-year and 36% over 2019. The gains were driven by a return to year-over-year growth in all three primary segments with Shout for the semiconductor sub-piece chip manufacturing. Canvys (medical monitors and touch screens) topped the 36.5% increase followed by a 26.7% increase in PMT (power and microwave) and a 10.9% increase in the healthcare sector.
Moving to the bottom of the report, the company saw a slight gross margin contraction but negligible in light of revenue growth. Gross margin contracted 90 basis points to 32.7% on mix and freight and was offset by lower operating expenses. In the end, GAAP’s $0.30 EPS rose not only by $0.25 from the previous year but the highest earnings reported in 11 years. Based on backlog that grew 16% YoY, we expect revenue to continue to grow on a sequential basis excluding production constraints and supply chain disruptions.
Richardson Electronics Attractive Profits
Richardson Electronics has an attractive return for small cap investors who pay 1.83% and comes with a relative degree of safety. The company has been paying dividends regularly at this level since 2012 and there are no red flags in the numbers. Payouts are 54% of year-to-date earnings and we expect the second half to be even better. In our opinion, the payout ratio should drop to the 25% or so range by the end of the year and possibly decline if momentum improves in the end markets. The balance sheet is a fortress too, the company is net cash with no long-term debt and the cash balance is growing.
Technical Outlook: Richardson Electronics Uptrend Slim
Unfortunately for Richardson Electronics to report earnings in the evening after a day in the market, price action is responding favorably to the second quarter news. The bottom line is that the uptrend in stock prices remains intact and we expect to see new highs identified during the calendar quarter period of 2022. The caveat is that market conditions may keep the stock range limited in the short to medium term. I’ll see about it. Assuming the stock is able to make a new high, the door will be open for an extended rally that could rise about 15% to the $15.50 level.