Tracking LoJack

 | Aug 03, 2011 | 10:16 AM EDT
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Lost amid the madness of yesterday's trading session, LoJack (LOJN), a well-known brand name that provides tracking and recovery systems for cars, trucks and other vehicles, reported what appeared to be less-than-stellar second-quarter results. In fact, the market gave the company a 2.5% haircut in pre-market trading, and things only got worse from there. Shares ended the day down more than 10%. That's the lowest level for LoJack since last September, and shares are now down nearly 45% year to date.

Considering that the Russell Microcap Index, perhaps the most appropriate benchmark for this company, is down 2.81% year to date, it does not get a whole lot uglier than that.

LoJack's second-quarter revenue fell to $33.5 million, down 10.4% from the same quarter last year, and this also fell well short of "consensus" estimates (if you can call one analyst a consensus) of $37 million. Revenue from North America, which represented about 71% of total revenue, fell 8%, while international revenue fell 12%. If there was any good news in terms of operating performance, it was that the company did swing to a profit of $200,000, or $.01 per share, vs. a loss of $18.2 million, or $1.05 per share, a year ago (which included a $15.1 million non-cash charge). Expectations for the quarter had been for a loss of $.01 per share. To the company's credit, it reduced operating costs by about 540 basis points to 50.7% of sales, down from 56.1% last year. But total costs still left very little room for profit this quarter.

The balance sheet, however, is still very solid. LoJack ended the second quarter with $53.7 million, or about $3.06 per share, in cash and short-term investments, and $10 million in debt. That puts the company's enterprise value at just $21 million. Given the company's cash hoard, at the current price of $3.57, buyers are theoretically getting $3.06 in cash and a long-dated call option on the company for $0.51. That was part of my rationale for taking an initial position in the company this past March. Shares are down about 17% since then, with much of that damage done yesterday.

Of course, the threat of a double-dip recession does not bode well for companies such as LoJack. The company blamed the earthquake in Japan for part of the revenue shortfall this past quarter, saying it caused supply disruptions and inventory shortages. Another slowdown in consumer spending would not bode well for LoJack. That being said, if that's where we are headed, the strength of the balance sheet should be sufficient to see the company through.

Management is now offering full-year 2011 guidance for revenue in the range of $140 million to $145 million and earnings before interest, taxes and depreciation and amortization (EBITDA) in the range of $12 million to $14 million. Interestingly, the company, which did not buy back any shares during the second quarter, still has authority to repurchase 1.68 million shares under its current stock buyback plan. It might be a good time to put some of that cash to work.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider LOJN to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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