By Hugo H. Ottplenghi
Broward Daily Business Review, January 21, 1999
Copyright 1999 Broward Daily Business Review

Sensormatic shares rise on magazine column, analyst recommendation; Investors in the Boca-based supplier of retail security systems have gotten a kick out of good news

One of South Florida's most trod-upon stocks, Sensormatic Electronics Inc. of Boca Raton, is back on its feet. After falling to a painfully low $3.13 on Oct. 8 last year, the share price has more than tripled.

These first few weeks of 1999 have been wonderful for the maker of electronic security systems for stores and other businesses. The company's $1 billion in annual sales make it a world leader in its field. Sensormatic stock has climbed nearly 50 percent so far this year, to close at $9.94 on Tuesday.

The upward swing has had broad support, as more than 1 million shares have changed hands daily in six of the first 10 trading days this year. By comparison, Sensormatic volume broke the 1 million daily mark only six days in the entire quarter ended Dec. 31.

Institutional investors appear active, with three block trades totaling 490,000 shares over three consecutive days last week.

What's pushing up the stock? Blockbuster earnings? Merger rumors? Insider trading?

No, no and no. The company won't comment on stock price movements, but Sensormatic seems to have benefitted from an upgrade of its stock by Southeast Research Partners Inc. of Boca Raton on Dec. 31 and a positive commentary from the Jan. 25 issue of Forbes magazine ("The Zapping of Sensormatic"), released on Jan. 11.

Southeast Research raised Sensormatic from a "hold" to a "buy" on Jan. 4, says research analyst Peter McMullin. While the company will likely report a 2-cent per-share profit for the second quarter ended Dec. 30, "we think sometime around the March quarter, you'll see a sizable increase in earnings."

Southeast Research predicts Sensormatic will earn 16 cents a share for that quarter and report 40 cents a share for the year. The annual earnings figure will jump to 60 cents for the year ending June 30, 2000.

The company hasn't had a profitable year since 1995. It lost 50 cents per share in the year ended June 30, 1998, 29 cents per share the year before that and $1.33 per share in 1996.

McMullin expects Sensormatic's sales of antitheft tags and systems to Wal-Mart to rise as the retail industry in North America continues to experience a growth rate of more than 10 percent.

"As goes Wal-Mart, I'm sure that there will be other [retailers] to follow," he says.

The stock took off the same day the report was issued, and McMullin says the president of Sensormatic told him in a conversation Tuesday, "You can take a lot of credit for that."

Sensormatic also received a defense of its store security systems in a Forbes commentary from contributor Michael Fumento, a senior fellow at the Hudson Institute in Washington.

"What's poisoning the stock?" Fumento asked in the column, and then answered, "Quack science, propagated by short-selling sharks, sloppy journalists and Sensormatic's shrewd archrival, Checkpoint Systems Inc."

Fumento says a public relations firm fired by Sensormatic got Checkpoint as a client and began disseminating a scientifically faulty research report claiming that Sensormatic shoplifting gates can interact with pacemakers.

Fumento writes that Reuters reported that the gates, made to set off antishoplifting tags, "can make implanted pacemakers and defibrillators go haywire, with sometimes fatal results."

Fumento questioned the study's small sample of 50 individuals and research practices.

"Most experts firmly agree no real risk exists," he wrote. "Journalists are loath to retract their scare stories," he writes, though Reuters did issue a correction saying there was no evidence of deaths.

"It's not news, but it's not really reached the attention it reached with Forbes," says Edward Tavelin, analyst with Fahnestock & Co. in Hallandale. While not as optimistic as McMullin about the company's prospects, he agrees that earnings over the next two quarters will show whether Sensormatic is headed toward greater profitability.

The news from Southeast Partners and Forbes have helped a stock that was battered in 1998 and has long underperformed the market.

Sensormatic's share price plunged last year from a high of $20 on Feb. 19 to less than one-fifth that in October.

The company had also disappointed investors by reporting a first-quarter loss of 2 cents per share.

Shareholders expressed their anger to chief executive officer Robert Vanourek at November's annual meeting. He assured them the company was taking pains to improve profits and cut costs.

McMullin says the company plans to remove $40 million in expenses this year from a $954 million budget without significantly hurting revenues.

Proof of that will come in the next few quarters, but for now, the stock has surpassed Southeast Research Partners' six-to-nine-month target price of $9 per share, and nearly reached its longer-term target of $12.

Read Michael Fumento's Sensormatic article.

Michael Fumento is the author of numerous books, including The Fat of the Land. Read Michael Fumento's additional work on alarmism and on the media.