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Come In Dispatch

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8

January 21, 2010 – Comments (3) | RELATED TICKERS: TESS

Growing up, one of my favorite television shows was called Highway Patrol . The thing that has stuck with me to this day, was Broadrick Crawford had a radio that would allow him to talk to dispatch from anywhere in the world, or so it seemed. I just thought that was the coolest thing.

Today, things are wireless. Police and emergency vehicles all seem to be equipped with laptop computers and a host of other wireless devices, which happens to be the business of TESSCO Technologies, Inc. (Nasdaq: TESS), a value-added provider of the knowledge, product and supply chain solutions needed to design, build, run, maintain and use wireless systems.

Company information suggested that the when it came to wireless products, they could do it all. So deciding we could "10-4" with the best of them, we tuned in to see what was what.

Basis
Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending March 29, 2009, as filed with the Securities and Exchange Commission on May 27, 2009.

What They Do
The company is in the wireless communications business, providing network infrastructure design, components, and installation for local area broadband networks, wide area broadband networks, and security and surveillance networks.

Short-term Investment
According to the trend lines we looked at, the stock is overbought and the MACD trend line appears to be leveling out, indicating the current upward trend may be about to fizzle.

The stock recently closed at $18.22, with resistance at $19.14, first support at $15.69, and second support at $13.79. Considering our interpretation of the trend line, a 5% upward ceiling to resistance, and a 14% drop to support, we believe a short-term trade at this time would be ill advised.

Long-Term (5 Year Hold) Investment
For a company with a market cap of less than $100 million, the financials were just so so. We would like to see the company increase its cash, ending fiscal 2009 at $0.12 per share, and while certainly not excessive at $0.78 per share, we would also like to see the company further reduce its debt.

Debt was reduced in fiscal 2009 by $0.74 per share, yet we couldn't help but notice that the company spent $1.74 per share on the repurchase of company stock. As we have said many times, we believe that such actions by management show fiduciary irresponsibility, and should we decide to investigate this stock for future investment, will focus our attentions on the specific reasons management allowed that to occur.

The company ended fiscal 2009 with a tangible book value of $10.72, shareholder equity of $12.04, and free cash flow of $2.40. Our reasonable value estimate for the stock based on fiscal 2009 numbers is between $48-$52.

Based on the financial metrics we employ, we believe the stock carriers a risk multiplier of near 40% which places our current risk adjusted buy target at $18-$19.

In addition, we anticipate at least a 25% reduction in our Reasonable Value estimate as fiscal 2010 unfolds, something that investors may want to consider since management seems more preoccupied with stock buy backs than the economy.

Wax

For the TESSCO Technologies Raw Value worksheet, please click here.

3 Comments – Post Your Own

#1) On January 21, 2010 at 9:42 AM, chk999 (99.97) wrote:

Higway Patrol was mostly filmed on rural roads in Chatsworth California. (This is the northwest San Fernando valley area of metro Los Angeles.) The area is pretty built up today, but for a long time in the 60's and 70's you could drive along the same roads and say "10-4".

Chris - Grew up not that far from there.

 

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#2) On January 21, 2010 at 10:05 AM, lemoneater (78.93) wrote:

At first I thought you were talking about CHiPs with Erik Estrada on his motorcycle chasing bad guys, but Highway Patrol came earlier.

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#3) On January 21, 2010 at 12:28 PM, wax (97.09) wrote:

Chris is lucky to have grown up there, and CHiPs came about 30 years or so after Highway Patrol.

10-4 everybody.

Wax

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