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Monday, 25 December 2006
Cytyc (CYTC) "Weekend Trading Portfolio Analysis"

 

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  I would like to of course wish all of my friends who celebrate Christmas the Merriest of Holidays!  And for all of you readers, I wish you the very best of health and success in 2007! 

One of the weekend tasks that I have been accomplishing the past year or so is to review one of my actual holdings in my trading account.  I have been trying to write up one stock about every two weeks.  Currently with 11 positions that I actually own, this takes me about 6 months to get through my list (assuming I miss a week every once in a while!).

Two weeks ago I wrote about my fabulous experience with my Coach (COH) stock.  Going alphabetically through my list of holdings, I am up to Cytyc (CYTC).  Let me share with you my own experience with this particular company and let's take a look at the stock and see if it still deserves consideration on this blog!

Currently in my trading account, I own 225 shares of Cytyc Corporation (CYTC) which closed at $28.41 on December 22, 2006.  These shares were acquired January 29, 2004, with a cost basis of $14.86. I also first discussed Cytyc on Stock Picks Bob's Advice that same day on January 29, 2004.  Thus, I have an unrealized gain of $13.55/share or 91.2% since my purchase of these shares. 

As is my policy, I have been selling portions of my original investment as the stock appreciated.  As I recall, I 'jumped the gun' on at least one of these sales.  I generally try to sell a portion (1/6th of my shares remaining) at targeted appreciation points.  To review, these targets for me are at 30, 60, 90, and 120% appreciation levels.  I also then start 'stretching out' these sale points by 30% each group of four sales, thus, after the 120% sale, I go by 60% intervals: 180, 240, 300, 360, and then by 90% intervals, 450%, etc. 

I have sold Cytyc three times: 100 shares on 3/1/04 at $18.62 (a $3.76 gain or 25.3%), 100 shares on 4/2/04 at $22.61 (a $7.75 gain or 52.2%), and 75 shares on 6/2/04 at $22.79 (a $7.93 gain or 53.4%).  You can see that back in 2004, I didn't maintain as good a discipline at hitting the appropriate targets....and in fact totally jumped the gun on that third sale!

So when would I be selling this stock next?  Well, on the upside, after three sales, I plan on selling 1/6th of my shares or 225/6 = 37 shares at a 120% gain or 2.20 x $14.86 = $32.69.  On the downside, I plan on selling my entire posiition if the stock retraces to 50% of the highest sale point at a gain.  In this case, after three sales (even if not properly executed), I plan on selling at the 45% appreciation point which works out to 1.45 x $14.86 = $21.55.

Let's take another look at this stock and update our review!

What exactly does this company do?

According to the Yahoo "Profile" on Cytyc, the company

"...engages in the design, development, manufacture, and marketing of clinical products that focus on women’s health. Its products cover a range of women's health applications, including cervical cancer screening, breast cancer risk assessment, treatment of excessive menstrual bleeding, and treatment of breast cancer."

How did they do in the latest quarter?

On October 25, 2006, Cytyc reported 3rd quarter 2006 results.  For the quarter ended September 30, 2006, revenue increased 18% to $154.3 million, up from $130.8 million in the same quarter the prior year.  Net income came in at $36.1 million or $.31/diluted share, up from $31.1 million or $.26/diluted share, an 18% increase in diluted earnings per share year-over-year!  The company beat expectations on both earnings and revenue as analysts had expected earnings of $.28/share on sales of $154.1 million according to Thomson Financial.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials we see a very nice picture of the recent past performance of this company.  Revenue, which was $221 million in 2001, has grown steadily to $508 million by 2005 and $584 million in the trailing twelve months (TTM).

Earnings have also steadily improved from $.10/share in 2001 to $.94/share in 2005 and $1.08/share in the TTM.  At the same time, the company has held the line on outstanding shares with 115 million in 2001 and 113 million in 2005 and the TTM.  No dividends are paid.

Free cash flow has been positive and basically growing with $64 million in 2003, $76 million in 2004, $135 million in 2005, and $125 million in the TTM.

The balance sheet is solid with $204.7 million in cash, $147.8 million in other current assets, with $352.5 million in total current assets, which when compared to the $62.1 million in current liabilities yields a very healthy current ratio of 5.7.  Generally speaking, current ratios of 2 or higher are healthy!  The company does have a moderate amount of long-term liabilities totalling $345.3 million, but this does not seem to be very significant in light of the ample current assets and growing free cash flow.

What about some valuation numbers?

Looking at the Yahoo "Key Statistics" on Cytyc, we see that this is a mid-cap stock with a market capitalization of $3.2 billion.  The trailing p/e is a moderate 26.18, and the forward p/e (fye 31-Dec-07) is estimated at 1.45.  The PEG comes in at a reasonable 1.45 (5 yr expected).

Checking the Fidelity.com eresearch website, we can see that the company has a Price/Sales (TTM) ratio of 5.56, well under the industry average of 20.32%, still putting it at the 80th percentile in its group.  

Insofar as profitability, examining the Return on Equity TTM (ROE) figure,  we can see that CYTC is reported at 20.06%, slightly below the 28.20% industry average, but at the 80th percentile in its group.

Finishing up with Yahoo, there are 112.63 million shares outstanding and 112.31 million that float.  As of 11/10/06, there were 1.61 million shares out short representing 1.4% of the float or a relatively low 1.7 trading days of average volume (the short ratio).  No dividend is paid and the last stock split was a 3:1 stock split March 5, 2001.

What about the chart? 

If we review the "point and figure" chart from StockCharts.com on CYTC, we can see what looks like a "v-shaped" chart,  with the stock declining from the $28 level in December, 2001, down to a low of $6.00 in June, 2002. The stock subsequently has moved steadily higher and with the price following the 'support line' does not technically appear to be over-extended from my amateur perspective.  I have noted my purchase point and sale points on the chart.  You can see how the third sale was premature, and only now at the 90% appreciation level, should I have been selling shares!



Summary:  What do I think about this stock?

Let's review a few facts.  First of all I do own shares, so please take that into consideration.  The latest quarter was quite strong with the company beating estimates on both earnings and revenue and turning in a strong performance.  The Morningstar.com report is gorgeous with steady revenue and earnings growth while at the same time slightly decreasing the outstanding shares.  Free cash flow is nicely positive and the balance sheet appears solid.  Valuation is also reasonable with a p/e is the mid-20's and a PEG under 1.5.  Finally, the chart looks nice as well!

Thanks so much for stopping by and visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, please feel free to visit my Stock Picks Podcast Website where I discuss many of the same stocks and issues I write about here on the blog.  Now, if I get a chance, I shall be updating that as well this weekend (?).  

Happy Holidays and wishing you a wonderful 2007.

Bob


Posted by bobsadviceforstocks at 11:28 AM CST | Post Comment | Permalink

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