American Science & Engineering: Estimates Too Aggressive?

Jefferies comments on American Science & Engineering (NYSE:ASEI), noting the company reports after the close on Monday and they expect results to be lighter than the aggressive consensus estimates of $47 million and$0.80. Backlog should look relatively strong on the surface, but with fewer quick turn-around ZBV orders in backlog, the June estimates are likely also too aggressive.

Assuming decent sequential growth in non-ZBV revenue, firm's analysis suggests the company would need to ship all of its ZBV backlog in order to possibly reach the consensus March revenue estimate of $47 million. Given we are now in the second half of the June quarter and the company has not announced any ZBV orders, they believe this scenario of shipping all ZBVs in the March quartermay set-up the company for a fairly weak June performance. A shift away from higher margin ZBV revenue would likely result in compressed margins and declining earnings.

At 22x firm's C08 EPS estimate they believe there may be some downside should the company miss consensus estimates and the outlook for growth remains negative. If investor nervousness increases, they would look at 3x $12 cash per share as a good cushion. ASEI likely bottoms in the next few months as the story moves past declining high margin DoD orders for ZBVs. In the second half of 2007 the stability of the business should firm up due to multiple recent longer-term contract awards, enabling healthy sequential growth from June quarter results.

Maintains Underperform and lowers target to $40 from $48.

Notablecalls: Looks like some downside in store for ASEI today. But also note that there is fair chance of a nice bounce play after the company reports on Monday as expectations will be quite low.