Riding Along With LoJack

 | Feb 22, 2012 | 12:30 PM EST
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There was one earnings report that I was waiting for yesterday, an under-the-radar company that is now getting little or no analyst coverage. After the bell, that company, LoJack (LOJN), a fairly familiar brand name that provides vehicle tracking and recovery systems, posted some good numbers for the fourth quarter.

I last wrote about LoJack in early August, when market volatility was on the upswing. Since then, the shares have done little; in fact, they are down 10% while the "broader markets," in this case the Russell Microcap Index, is up about 3% during the same period. It was much worse for LoJack near year-end, as shares slipped into the $2.30 range, before rebounding $3.60 in early January, primarily due to a buyback announcement of up to 10% of outstanding shares, and subsequent follow-through. Since then, they have given back about 10%, ending yesterday at $3.23.

But if the fourth-quarter results don't put some spark back into this name, then I'm not sure what will. Revenue rose 6.1% to $42.5 million, and net income rose 67% to $4.6 million or $0.26 per share. For the full year, revenue was down about 4% to $140.8 million, but the company swung back to profitability from last year's $18.3 million loss (which included a $15.1 million non-cash charge). The first half of 2011 was slower than expected, but the second half, and especially the fourth quarter, showed some signs of life.

Certainly, one of the main factors that attracted me to LoJack in the first place was the company's balance sheet, which is loaded with cash. LoJack ended 2011 with $49.6 million in cash, and an additional $ 1.8 million in marketable securities, which equates to $2.84 per share. Debt remains light at just $11.3 million, giving the company an enterprise value of about $17 million. At the current share price of $3.23, investors are getting about $2.20 per share in net cash, and a long-dated call option on the company's future prospects for just over a buck.

Of course, that's all theoretical. Plus, long-dated call options, as I've described above, are only worth something if the company has a future. If nothing else, yesterday's earnings release showed that there is some life left in LoJack and that option should be worth more than $1.00. We'll see if the rest of the market agrees.

The company itself took advantage of the situation, repurchasing more than 368,000 shares during the quarter with an average cost of $2.82. There's still authority to repurchase an additional 1.3 million shares, and plenty of cash to make that happen. In fact, there is ample cash to pay a dividend, a prospect that may be preferred by some over buybacks. What a strong signal of management confidence that would send to investors. It may be a premature measure, but with new CEO Randy Ortiz and CFO Donald Peck having just assumed their roles this past fall, that would be one way to get this company back on the radar.

If the recovery in the U.S. auto market is, indeed, both real and sustainable, this should bode well for company, which saw its North American revenue rise more than 11% for the fourth quarter. Time will tell.

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