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Monday March 15, 2010
Deer (DEER): Appliance profits
by Tom Bishop, editor BI Research
Don’t be fooled by this mundane business just because almost all Americans already have a blender or juicer in the cupboard. In China and other emerging nations, few do. In January, Deer announced a three-year national sales agreement with one of China’s largest electronics retailers with 1,200 stores. Deer expects sales within China to leap 300% in 2010.
Note that sales within China carry considerably higher margins and are expected to be in the $55 to $60 million range in 2010. Earlier, in Q4, Deer also landed a big contract with another major Chinese retailer. Then in February, Deer announced an acquisition, raised guidance yet again and noted that business was expected to remain strong. The company has acquired the assets of a regional Chinese manufacturer of kitchen appliances for not more than 4 times earnings. One of its primary products is mini-refrigerators. The acquisition is expected to contribute $20 million to 2010 sales and $2 million of profit. Accordingly the Company raised guidance to approximately $155 million leading to net income of $24 million, keeping a little in reserve for now. The company also announced it had $3 a share in cash and that, “While we continue to focus on growing our business, Deer is in the process of weighing several strategic options globally that could potentially further enhance our shareholder value." Hmm…very interesting… It is worth noting that this company gives guidance that appears to be too high and then beats the stuffing out of it. With $80 million of cash, the Company’s strong financial position, combined with high quality products at a low cost makes Deer sought after by prospective customers. Institutions have begun feeding heavily as well with Janus owning 750,000 shares, Wall Street Associates owns 619,000, Delaware Management owns 603,000, a subsidiary of Guardian Insurance owns 587,000 and Oppenheimer Funds owns 451,000, among the largest. I don’t know what more investors could want here. Meanwhile, DEER has continued to tear the cover off the ball; it recently reporting a very strong quarter and full year and reiterating recent guidance indicating a near doubling of revenues and net income in 2010. In short, business is good with lots of opportunities. The shares are a strong buy. Learn more about this financial newsletter at Tom Bishop's BI Research. |
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Deer Consumer Products (NASDAQ: