AUSTIN, Texas-The microwave and radio-frequency components industry had a good year for earnings, but stocks did relatively poorly in 1997, primarily because of a severe price-per-earnings multiple contraction caused by the ongoing currency turmoil in the Far East, according to an annual overview by research firm Loewenbaum & Co.
Since the beginning of the year, the market weighted index is up only 4.3 percent and the equal weighted index, which is less impacted by the two largest companies in the weighted index, Andrew Corp. and Harris Corp., rose 17.7 percent-both trailing the 31-percent increase in the S&P (Standard & Poor’s) 500.
The market weighted index consists of Andrew, California Microwave Inc., Celeritek Inc., Digital Microwave, Harris, Innova, MAS Technology, Nera, P-Com and Remec. At the end of December, the total market value of the group was $8.6 billion. Of that amount, more than two-thirds of was contributed by Andrew and Harris.
Almost all of the poor stock performance for the group during the year was driven by the contraction in the absolute and relative price per earnings, or P/E, and the stocks are now trading at 19x 1998 earnings per share estimates-the lowest P/E relative to the S&P 500 since 1996.
The average earnings per share, or EPS, gain for the industry was 68 percent, and earnings are expected to increase 34 percent in 1998. Historically, millimeterwave and microwave frequencies have been used only in defense applications, but the decline in defense budgets worldwide and advancements in technology have forced the opening of these frequencies to new commercial applications, the research company said.
Loewenbaum expects increased deregulation, wireless penetration and competition in the local exchange market as well as the introduction of new applications to result in another strong year of earnings growth in 1998.
