Hurco: Value Play with Strong Earnings Power

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 |  About: Hurco Companies, Inc. (HURC)
by: Robert Maltbie

Singular Research is initiating coverage on Hurco (NASDAQ:HURC), citing that unmatched computer control systems will lead to market share gains, and that the stock is a value play with strong earnings power beyond 2009. Key excerpts follow.

INVESTMENT THESIS

  • Hurco Companies is the only machine tool manufacturer with a computerized control system that does not require programming skills from a machinist for complex new designs.
  • In an industry with a plethora of “me-too” product features, the company’s computerized control system is unique in its capability to improve human productivity and shorten product cycle time.
  • Hurco has been gaining market share. Currently there is strong demand for its high priced products. Recent expansion of distribution in China and India is driving revenue growth in the region.
  • The stock price reflects a worldwide economic recession, which we believe is unlikely. Our forecast reflects poor US demand and weakening demand from Europe and Asia in FY:09. We expect a rebound in FY:10.

RISKS

  • The machine tool industry has historically been a good leading indicator for economic growth. As such, it is difficult to accurately predict future revenue trends for the machine tool industry.
  • Competition is from larger companies that are better financed and have a long history in the industry.

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