Tuesday, March 27, 2007

Calls of Note Part 4

- Stanford comments on Brooks Automation (NASDAQ:BRKS) after co's software product line sale to Applied Materials clears last anti-trust hurdle. Firm notes the sale should net BRKS $1.50/sh in cash. In addition to its existing $2.50/sh, the company is now cash heavy with significantly more than it needs to effectively run the business. Firm believes this sale is the lynchpin in finalizing a major cash distribution/stock buyback strategy, which they believe will be announced when BRKS reports its 2Q07 financial results, tentatively scheduled for May 9th.

BRKS will close the Mar Q with about $200 mil in cash but will receive another $115 mil. when the sale of its software product group to Applied Materials closes, expected in early April. At its current run rate, BRKS is generating $25 mil. cash/Q. Thus, mgt. believes that BRKS will exit the September fiscal year with close to $400 mil. in net cash ($5.30/sh, about 33% of market cap). Management believes it needs $100 mil. to run the business and another $50-$100 mil. for opportunistic acquisitions, leaving $200+ mil. to possibly return to shareholders.

Firm believes the best alternative for investors, a major positive for the stock and the most likely scenario would be an accelerated buyback > $100 mil. announced at Mar. Q earnings release. Such a buyback would be accretive to earnings. The institution of a small (< $0.05/share/Q) dividend would also be a significant positive catalyst for the stock. No buyback and/or small ongoing dividend may connote to investors internal, undisclosed problems for which the company is hoarding cash, clearly a negative.

Notablecalls: Not actionable but good to know category.

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