This Scoreboard Maker's Drop Could Be a Chance to Score a Deal

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Daktronics (NASDAQ: DAKT) dropped after announcing weak sales for fiscal 3Q 2013, but the company also announced order growth figures that look more promising. The display maker's screens show up at stadiums around the country, and its LED display technology offers cost advantages that could support sales over the long run. Daktronics' LED displays can help marketers, schools, and athletic teams put on a show while limiting their electricity bills. As a company that makes LED products and owns factories in the Midwest, Daktronics might also qualify for federal energy efficiency funds. The recent price drop might be a buying opportunity for this display maker.

Sales Potential

Daktronics reported 10% weaker sales for the quarter in its earnings release, which caused its share price to drop from more than $12 down to around $10 a share. Daktronics achieved better sales growth over the long term. The Motley Fool lists a one year sales growth figure of 10.8% and a three year sales growth figure of 7.7% for Daktronics. Daktronics' sales drop this quarter might not indicate lower sales in upcoming quarters.

Daktronics' major display installation projects, such as its ongoing contract with the New Jersey Turnpike Authority that has a total value of $20 million, can take more than a year to complete. Daktronics uses the percentage of completion method to determine when to book its display revenue, so the display maker normally has ongoing projects that haven't been entirely recorded as revenue yet. In 3Q fiscal 2013, Daktronics reported that its orders for the quarter rose by 25.5% to $134 million. Daktronics also reported a 14.6% rise in orders for the last nine months, compared to the first three quarters of fiscal 2012. The nine month order figure surpasses Daktronics' historical revenue growth figures.

Competition

LSI Industries (NASDAQ: LYTS) also makes LED display equipment. LSI reported sales growth of 3.4% last quarter, along with a $2.45 million loss. LSI beat Daktronics on sales growth, but Daktronics shined on earnings last quarter with a $2.7 million profit. LSI's long term performance also looks a bit dimmer than Daktronics' results. The Motley Fool site shows that LSI's sales dropped 8.6% over the last year, and the company achieved 3.9% sales growth over the last three years. LSI's recent results were dragged down by its $8.15 million Virticus acquisition in 2012. LSI does have a 3.3% forward yield that surpasses Daktronics' 1.9% yield, though. 

Energy Conservation

LED lighting manufacturers have received financial support from the Department of Energy. A 2010 article from LEDs Magazine explained that the Department of Energy provided $37.8 million to LED manufacturers, and General Electric (NYSE: GE) and Philips (NYSE: PHG) won multiple awards. The Department of Energy may provide additional support for LED lighting manufacturers in 2013. In February, the Department of Energy announced that it had $150 million in tax credits available to support manufacturers in the clean energy and the energy conservation businesses, and the criteria for distributing these awards included whether the companies employed factory workers in the United States. LSI and Daktronics might qualify for this tax credit as manufacturers that make energy efficient products because of their LED lighting displays, and both companies have factories in the Midwest. Daktronics might also qualify for future Department of Energy programs because of these factors, as well.

A November 2012 General Electric press release explains the attractions of outdoor LED lighting. General Electric explained that it installed LED lights that reduced a Lexus dealer's power bill by $49,000 annually. Daktronics has developed a niche for itself in the billboard and display business, but General Electric does look interested in outdoor LED lights right now.

Philips has also demonstrated recent interest in the outdoor LED lighting industry. On February 14, 2013, Philips announced that four of its outdoor LED products had won awards in a contest run by Next Generation Luminaire. Philips won awards for outdoor lights here, not display screens, but these products do show that Philips poses a potential competitive threat to Daktronics.

Takeaway

The billboard maker's dip this quarter looks temporary. Government agencies, schools, and airports, and private businesses such as auto dealerships and resorts all face cost and environmental pressures that buying or upgrading an LED display system could help address. Daktronics also mentioned that it might buy Belgian marketing firm OPEN Out of Home Solutions in its 3Q fiscal 2013 release, which could boost Daktronics' international prospects. Daktronics already reported 40% more international orders in the last nine months than it reported for the first three quarters of fiscal 2012. Daktronics looks like it still deserves its four star CAPS rating, and now investors can pick the display maker up for a lot less.


Eric Novinson has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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