Merrimac Industries: A Potential Turnaround Story

Merrimac Industries, Inc. (MRM) engages in the design, manufacture, and sale of electronic components and subsystems for commercial, military, and high-reliability markets (Company Information). Per Bloomberg, it has a tiny float of 1.5m shares and 2.9m shares outstanding.

Yesterday MRM reported a monster turnaround first quarter of 2009. Sales were up 32% YOY and gross profit margin was 45%. MRM earned $0.29 EPS vs. a loss of $0.29 EPS last year. The CEO had a very nice comment regarding the upcoming second quarter:

Chairman and CEO Mason N. Carter commented, "We are clearly executing our new strategy well as reflected in the Financial Highlights. Fiscal year 2009 has begun with a strong first quarter. New orders met our internal targets; operating performance, as measured by our gross profit margin of nearly 45%, exceeded our plan. We anticipate the second quarter to have both strong incoming orders and operating performance." (Press Release)

Like recent runner Diedrich Coffee (DDRX), which posted $0.25 EPS in a turnaround quarter and hit $15 so far from an open of $3.70 the day the company reported the last quarter results, MRM appears to me to be an equal complete turnaround story with an even lower float.

This stock reminds me of the stock BOOM in 2005 when it was around the same price range as MRM today ($8.35 close - May 19) and had a major turnaround in its business and went on to become one of the best performing stocks of that year. If this quarter is an indication of a new EPS run rate, then MRM could be on the way to $1-$1.20+ EPS for 2009. If I were to apply a 20 P/E for that EPS range due to growth I would get a share price of $20-$24.

MRM is thin and will be volatile due to its float. In my opinion, it is not a stock to chase or have a large position in. That being said, I am long this stock from $6.40 and will add on any significant pullbacks as I believe this has the potential to move much higher like DDRX recently has on its similar turnaround.

Disclosure: Long MRM

Comments

[traddr99:]

stockdogg and ihatepumpers123 you obviously just joined SeekingAlpha because you have a personal issue with this author. I have followed him for years and he is excellent. You have to set your own targets when to get in and out of stocks. The last article said why the stock COULD have a $100 valuation, he never said it was going there. And on this current article he wrote,

"MRM is thin and will be volatile due to its float. In my opinion, it is not a stock to chase or have a large position in. That being said, I am long this stock from $6.40 and will add on any significant pullbacks as I believe this has the potential to move much higher like DDRX recently has on its similar turnaround."

You two seem like yahoo message board bashers that have a personal issue with this author. What do either of you contrivute to Seeking Alpha? Your abuse to this author should be reported in my opinion.

May 21 07:57 AM

[traddr99:]

stockdogg and ihatepumpers123 you obviously just joined SeekingAlpha because you have a personal issue with this author. I have followed him for years and he is excellent. You have to set your own targets when to get in and out of stocks. The last article said why the stock COULD have a $100 valuation, he never said it was going there. And on this current article he wrote,

"MRM is thin and will be volatile due to its float. In my opinion, it is not a stock to chase or have a large position in. That being said, I am long this stock from $6.40 and will add on any significant pullbacks as I believe this has the potential to move much higher like DDRX recently has on its similar turnaround."

You two seem like yahoo message board bashers that have a personal issue with this author. What do either of you contrivute to Seeking Alpha? Your abuse to this author should be reported in my opinion.

May 21 08:44 AM

[traddr99:]

MRM hits another high..........ihatepum... you just joined this because you dont like the author....MRM he called it at 6.40 and it hit 11 today ...when you can do soemthing like that (instead of whining), you let us know... ROTFLMAO

May 21 05:38 PM

[traddr99:]

and DIT closed up 36.50

May 21 05:38 PM