|Hi, Roy. With this well-timed press release regarding FY 2002 revenue growth, KVH actually adjusted expectations for FY 2002 downward a tad. The only analyst covering the stock was estimating $48 MM in revenue for FY 2002. By my calculation, the new expectations put FY revenue at about $45 MM. There was a time about 6-9 months ago that the notion of 50% revenue growth was bandied about which, on top of the $40 MM expected at the time for FY 2001, would put FY 2002 at $60 MM.|
In any event, this PR does serve to reinforce that FY 2002 looks fine, and also show that profitability will return soon, perhaps much sooner and stronger than many thought. The estimate for FY 2002 is about .13 a share. Assuming we lose .10 a share in the first two Qs, to make this estimate, we would have to post .23 a share the last 2 Qs of FY 2002. That's basically a .50/share annual run-rate. No complaints there. If KVH can bring its photonic and flat antenna products to the market successfully, it will be rewarded with a high multiple off this .50 run-rate.
IMHO, the military orders are nice, and give the coffers a boost, but are frankly too lumpy to by themselves ever permit this stock to maintain a high multiple. If military orders back off in FY 2003, KVH's other orders must pick up substantially simply to maintain static revenue. We are all well aware of the potential for many of the products coming out, but that creates risk. FOG orders have been growing tremendously well for the past few years, but the stock price really hasn't moved. Could we see the same thing if flat antenna or photonic products (I won't even mention the current sensor!) grow at high rates off a small base, but are basically offset by a multi-million dollar decline in high-margin military orders? There might be a painful transition at some point.
Since I'm on a bearish rant, I want to raise another point. I'm not entirely convinced that KVH will benefit to the extent many of us hope from the government's new focus on defense spending. The government will not be buying a lot of tanks or personnel carriers that require FOGs. Of course, there are probably other defense uses for KVH's fiber optic technology that MKVH cannot (and should not!) discuss with us for national security reasons until the appropriate time. If that is the case, we could see long-term, sustained military order growth, and all of the above should be ignored.
Perhaps this entire post should be ignored. Anyway, as you know, I'm not a bear, and have owned KVHI for longer than I care to admit. I just like to examine the potential risks with you folks so we can maintain some perspective. Do you or Bob or Sector or anybody else have any thoughts about these points?
All the best.