Richardson Electronics Ups The Voltage On Growth

Richardson Electronics Is In The Right Place At The Right Time

Small-cap Richardson Electronics (NASDAQ: RELL) caught our attention last earnings cycle when it reported earnings. Strengthening trends across all end markets were driving results and indicated strength would continue in the current quarter. Now, with the Q4 results in the bag, it is evident that faith was not misplaced. The company produced record revenue and earnings on a growing backlog that is driven by the need for electronic components in the communications/5G market, healthcare, and semiconductor fabrication among others. In our view, Richardson is a small company with a big future ahead of it and it pays an attractive dividend to boot. If you're looking for a little exposure to today's trends in electronics this is a good stock to own.

Richardson Electronics Exceeds Expectations, Backlogs Grow

Richardson Electronics exceeded all expectations in fiscal Q2 but that is not saying much because there are no analysts covering this stock at this time. The only expectations are our own and that only counts for so much. Regardless, the company reported $54.0 million in consolidated revenue for a gain of 37% over last year and 36% over 2019. The gains were driven by a return to YOY growth in all three of the primary segments with a shout-out for the semiconductor wafer fabrication subsegment. Canvys (medical monitors and touch-screens) led with a 36.5% gain and was followed by a 26.7% increase in PMT (power and microwave) and a 10.9% increase in the Healthcare segment.

Moving down the report, the company experienced a small contraction in the gross margin but it is negligible in light of the revenue growth. Gross margin contracted by 90 basis points to 32.7% on mix and freight and was offset by a decrease in operating expenses. On the bottom line, the GAAP $0.30 in EPS is not only up $0.25 from the previous year but the highest reported earnings in 11 years. Based on the backlog, which grew by 16% YOY, we are expecting revenue to continue growing on a sequential basis barring production limitations and supply chain hiccups.

Richardson Electronics Has An Attractive Dividend

Richardson Electronics has an attractive dividend for small-cap investors that pays 1.83% and comes with a relative degree of safety. The company has been paying the dividend regularly at this level since 2012 and there are no red flags in the numbers. The payout ratio is running at 54% of the YTD earnings and we are expecting the second half to be even better. In our opinion, the payout ratio should fall to the range of 25% or so by the end of the year and possibly lower if momentum in end markets improves. The balance sheet is fortress as well, the company is net cash with no long-term debt and the cash balance is growing.

The Technical Outlook: Richardson Electronics Uptrend Is Intact

Richardson Electronics had the misfortune of reporting earnings the evening after a down day in the market but price action is responding favorably to the Q2 news. The takeaway is that the uptrend in share prices remains intact and we are expecting to see new highs set during the calendar Q1 period of 2022. The caveat is that market conditions may keep the stock range-bound over the short to mid-term but we'll see about that. Assuming the stock is able to make a new high, the door will be open to an extended rally that could take it up about 15% to the $15.50 level.