SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks : VAR - What's the story?

 Public ReplyPrvt ReplyMark as Last ReadFileNext 10PreviousNext  
To: rkg who wrote ()3/8/1999 1:19:00 AM
From: Achoo   of 4
 
Here's an article from Barrons. I haven't been following VAR but got curious after reading it.
-----------------------------------------
March 8, 1999

Top Spin?
By Rhonda Brammer

One plus one equals three -- or a whole lot more. At least in the new math of spinoffs. A case in point: AT&T's 1996 spinoff of Bell Labs, rechristened Lucent Technologies. AT&T has appreciated some 50% since then, while Lucent has quintupled.

Little wonder, then, that investors warmly responded to Hewlett-Packard's disclosure last week that it planned to spin off its $7 billion-a-year test-and-measurement-equipment operation.

Which brings us to Varian Associates. The company, with a stock-market value of $1 billion, in April will split itself into three parts. Each of which obviously will be our cup of tea -- a small cap.

The breakup was first announced last August -- and the stock popped as high as 43. Since then, however, earnings have been disappointing and so has the action of the stock. At 34, Varian languishes near its five-year low. Painful to current shareholders, the depressed stock price might just prove an opportunity for potential ones.

Enough opportunity to merit plowing through a 700-page proxy?

You bet, insists Tim Curro, who runs a New York City-based hedge fund called Value Holdings.

He believes Varian's three parts are worth at least $50.

Based in Palo Alto, California, Varian
Associates is a high-tech firm that has
routinely spent $100 million a year on
research and development. Its three
businesses -- medical systems, instruments
and semiconductor equipment -- are all
leaders in their industries.

Varian Medical, which will trade under the stock symbol VAR, is one of the world's major suppliers of equipment for treating cancer with high-energy radiation. Products also include X-ray tubes and imaging subsystems.

For the fiscal year ending September, Curro expects sales of about $570 million and earnings per share around $1.35. At roughly one times revenues and 15 times earnings, Varian Medical would be worth $20 a share.

Varian Instruments, to trade under the symbol VARI, is a global supplier of state-of-the-art analytical and research equipment, ranging from optical spectroscopy to nuclear magnetic resonance instruments. Last fiscal year, pro forma, on sales of $558 million, it earned $21 million, or 70 cents a share. This fiscal year, Curro is conservatively looking for 75 cents, then 90 cents in fiscal 2000.

Varian Instruments is worth at least $14 a share, or 18.5 times his '99 number, he figures. "These guys have been showing significantly increasing profit margins."

The controversial part of Varian -- at least currently, since earnings are in the tank -- is Varian Semiconductor Equipment, which will trade as VSEA. Yet this division is No. 1 in ion implanters, which are used by virtually every major chipmaker in the world.

Pro forma, in the fiscal year just ended, on sales of $343 million, VSEA earned $11 million, or 38 cents a share. That's a very nasty drop from fiscal '96, when on revenues of $668 million it netted $79 million, or $2.56 a share.

Though Curro projects a small loss for this fiscal year, he believes the worst is over and forecasts 45 cents for fiscal 2000, 90 cents in 2001. And he stresses that this is a world-class company.

While Varian's medical and instrument divisions will start their new lives with decent balance sheets, VSEA will have virtually no debt and $3 a share in cash. The bottom line: VSEA is worth at least $16, Curro says.

Which gets us, yes, to $50 a share for all three pieces.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFileNext 10PreviousNext