On Track Innovations (NASDAQ:OTIV)
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Dutton Associates continues its coverage of On Track
Innovations Ltd. (NASDAQ:OTIV), raising its rating to Strong Buy and
maintaining its $18.00 price target. The 10-page report by Dutton
senior analyst Rafael K. Kapelinski is available at www.jmdutton.com
as well as from First Call, Bloomberg, Zacks, Reuters, and other
leading financial portals.
We are raising our rating to Strong Buy in light of the pullback
of its share price from its mid April highs. We continue to argue that
the long-term prospects remain intact and that OTI should be among the
primary beneficiaries of the accelerating switch to contactless
microprocessor-based smart card solutions in the banking, merchant,
medical and other industries. We believe that OTI generated some
revenue from both MasterCard and Amex in the last quarter, which bodes
well for the future given the relative immaturity of these programs.
Whatever the timing of the US ePassport contract, we do believe that
OTI will be among the contract winners given the maturity of the
Company's standards-compliant technology and the strong
track record. At present, our 2005 estimates include only a nominal
contribution from this opportunity. Management expects to be able to
win at least one international ePassport project, which would provide
a scope for a significant upgrade of our current estimates. We are
raising our 2005 revenue forecast from $29 million to $31 million as
we had initially overestimated the negative impact of the recent
divestments of the Germany subsidiary. The Chinese ID program
continues to pick up the pace as well. While we are upbeat about the
revenue prospects in both 2005 and 2006, the profitability outlook has
become slightly less encouraging. We are lowering our 2005 EPS
estimate from -$0.51 to -$0.65 primarily as a function of slightly
lower gross profit margins. We estimate that the Company should be
able to lift the gross margin to 47% by 4Q 2005E as the Chinese ID
program should contribute to the revenues strongly. Finally, the
growing contribution of higher-margin non-product revenues should
additionally boost the gross margin.
About Dutton Associates
Dutton Associates is one of the largest independent investment
research firms in the U.S. Its 27 senior analysts are primarily CFAs
and have expertise in many industries. Dutton Associates provides
continuing analyst coverage of over 95 enrolled companies, and its
research, estimates, and ratings are carried in all the major
databases serving institutions and online investors.
The cost of enrollment in our one-year continuing research program
is US $33,000 prepaid for 4 Research Reports, typically published
quarterly, and requisite Research Notes. The Firm does not accept any
equity compensation. We received $41,000 from the Company for 6
quarterly Research Reports with coverage commencing on 10/19/2004. Our
principals and analysts are prohibited from owning or trading in
securities of covered companies. The views expressed in this research
report accurately reflect the analyst's personal views about the
subject securities or issuer. Neither the analyst's compensation nor
the compensation received by us is in any way related to the specific
ratings or views contained in this research report or note. Please
read full disclosures and analyst background at www.jmdutton.com
before investing.