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Coverage Initiation: Measurement Specialties, Inc.
Measurement Specialties, Inc. (MEAS), a New Jersey corporation organized in 1981, is a global designer and manufacturer of sensors and sensor-based systems that measure pressure/force, position, vibration, temperature, humidity, and fluid properties. Its products are used as embedded devices by original equipment manufacturers (OEMs) or as standalone sensors for test and measurement to provide critical monitoring, feedback and control input. Specifically, the company’s products are used for engine and vehicle, medical, general industrial, consumer and home appliance, military and commercial aerospace, environmental water monitoring, and test and measurement applications. Measurement Specialties has manufacturing plants in 14 countries and over 3,200 employees worldwide.
The company sells its products in North America (35% of fiscal 2011 revenues), Asia (24%) and Western Europe (41%). Recently, the percentage of international sales relative to the overall business has grown with acquisitions. Indeed, starting June, 2004 through fiscal 2012, the company consummated 18 acquisitions with a total purchase price of roughly $250 million. Measurement Specialties uses acquisitions to enhance long-term shareholder value by increasing growth in sales and profitability through the addition of new technologies, establishing new lines of business, and/or expanding its geographic footprint. Still, there are risks of continuing this strategy. Namely, the difficulty of integrating the purchased firm, the potential disruption of ongoing business and distraction of management, expenses related to the acquisition (including funding the purchase), and potential hidden liabilities associated with acquired businesses. Also, the inability to acquire firms at the company’s prior pace could hurt its growth rate.
The global market for sensors includes many diverse products and technologies, is highly fragmented, and is subject to moderate pricing pressures, depending on the end markets and level of customization. Consequently, the company has a wide variety of competitors, including small independent companies and divisions of large corporations, such as Danaher (DHR), General Electric (GE – Free GE Stock Report), Schneider-Electric, and Honeywell International (HON), none of which are believed to dominate the overall market for sensors. Further, none of these rivals offer all of the same product lines or serve all of the same markets as Measurement Specialties. The principal elements of competition in the sensor market are technology and production capability, price, quality, service, delivery speed, breadth of product, brand recognition and a willingness and ability to design unique applications to meet specific customer needs. To maintain and improve upon its market position, the firm’s research, design, and engineering teams collaborate with customers to design custom sensors for specific applications. Once a customer has designed one of Measurement Specialties’ sensors into its products, that customer typically stays with the company due to the high cost and time of switching to another supplier.
In terms of risks, subpar worldwide economic conditions have, and may continue to have, a particularly large impact on the company’s operations. Adverse conditions make it difficult for its customers, vendors, and the firm itself to accurately forecast and plan future business activities, and have caused, and may continue to cause, customers to reduce spending on its products. These troubles tend to be reflected in the stock price. During the 2001 and 2007-2009 recessions, Measurement Specialties’ shares fell from a price in the mid-to-high twenties to single-digits in both instances. Moreover, the company’s success may, to a certain degree, be connected with the success or failure of its customers’ products, as well as the industries in which they operate.
The company remains focused on creating long-term shareholder value through continued development of innovative technologies and strengthening its market position by expanding customer relationships. To accomplish this goal, Measurement Specialties continues to take steps it believes will result in sales performance in excess of the overall market. In fact, over the past ten years, the compounded annual growth rate of company sales has been 19%, which has exceeded general industry increases. A core tenant of its long-term strategy to increase profitability is to grow the size and scale of the company (typically through acquisitions) in order to improve its leverage of selling, general, and administrative expenses. Too, the business will look to strengthen its offerings with heavy research and development spending, in order to maintain product innovations for new sales and to improve profitability.
To monitor the results of this company and evaluate its investment merits, we encourage readers to check out our full page reports in The Value Line Investment Survey, and be mindful of supplementary reports for relevant breaking news.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.