Backups Boost Imation

07/09/2004 12:00 am EST

Focus:

John Dessauer

President, John Dessauer Investments, Inc.

"As I write each issue of Investor’s World, I regularly back up my work on a CD and store it in a safe separate location," says John Dessauer. "This is a small example of the necessity of removable data storage media." Our latest recommendation is a beneficiary of this trend."

"Big businesses constantly back up data on removable media. The media can be a floppy disk, CD, digital tape, or flash media. Removable media is a $7 billion industry, growing at a 5% to 10% annual rate. Imation (IMN NYSE), our latest new buy, is the only company that covers all aspects of removable media storage. The company has a 17% to 20% share of the global market, leaving room to grow not only with the industry but by gaining market share. Imation is in 100 countries, and 60% of its sales come from outside the US. Production facilities are mostly in the US. ‘Made in the USA’ is cheaper as the dollar falls, so Imation is one stock that benefits from a weaker dollar. Imation also benefits from the rising tide of new regulation, including Sarbanes-Oxley. Businesses are now required to keep far more data in storage, backed up and ready for government inspections. More regulation means more need for removable media storage.

"Here is a powerful story of low risk and high potential capital gain. Imation began as a hodge-podge collection of various businesses spun out of MMM in 1996. But management made a decision in 2002 to focus on the removable storage business. Imation is now a focused company with clear goals, namely to grow the business by 10% a year, with net profit margins of 10%. Here is a company that emerged from a long period of stagnation and is finally focused and ready to grow. Last year’s revenues were $1.164 billion, up 9% from 2002. This year, the goal is $1.28 billion, up 10%. Operating earnings in 2003 were $2.10 a share. The estimate for this year is $2.33, up 11%. Last year, they initiated a dividend. It has been raised to $0.40 per share per year. Imation also has $416 million in cash ($11.70 a share) and no long-term debt. In my view, this is a low-risk investment that has the potential for significant upside surprises. Imation is a solid business, with a strong balance sheet, a global reach and excellent management. This stock can double in five years or less. Imation is a buy."

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