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SCI Systems rallies despite mixed outlook

In a case of majority rules, SCI Systems Inc. (NYSE: SCI) shot up 5 1/2, or 14 percent, to 45 11/16 Thursday after one brokerage firm downgraded the stock, another raised its estimates and a third reiterated its "buy" recommendation.

All this musing comes on the heels of the electronics manufacturer's first quarter earnings report.

In the quarter, SCI raked in $40.7 million, or 56 cents a share, on sales of $1.66 billion, in line with the First Call consensus estimate of 56 cents a share.

However, there seems to be some difference of opinion on this stock going forward.

Lehman Brothers raised its fiscal 2000 estimate from $2.52 a share to $2.60 a share, citing a lower tax rate and firming operating margins.

Analyst Lou Miscioscia said the lower-than-expected first quarter sales was mainly due to weakness in the PC commercial market. He added that set-top boxes were strong, and could have made up the revenue difference if component availability was better.

"In general though, component availability was not an overriding factor in the quarter, nor is it expected to affect the second quarter," he said in a research note.

Miscioscia also raised his second-quarter estimate from 63 cents a share to 66 cents a share.

BancBoston Robertson Stephens analyst Keith Dunne reiterated his "buy" recommendation on the stock and also raised his 2000 estimates.

"We are raising our fiscal 2000 earnings-per-share estimate to the mid-point of our $2.50-2.60 range to reflect a lower tax rate and better working capital management, which should offset slightly lower margins due to increased startup and amortization expense," said Dunne in a research note. "We continue to believe the worst is past and that fundamentals are improving at SCI."

Warburg Dillon Read analyst Scott Heritage was less optimistic, cutting the stock from a "buy" to a "hold" recommendation.

Heritage said the $1.66 billion in sales were considerably lower than his estimate of $1.8 billion. However, he maintained his fiscal 2000 and fiscal 2001 estimates of $2.63 a share and $3.03 a share, respectively.

Last quarter, SCI beat most analysts' estimates, pocketing $42.8 million, or 60 cents a share, on sales of $1.8 billion.

The stock surged to a 52-week high of 59 3/8 in January before slipping to a low of 25 1/4 in April.

Nineteen of the 20 analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.