Operating Leverage is the KeyFinally had a chance to listen to the last cc. Quite impressed with the bullish results and also with the outlook from management. Interesting to note that they are conveying the "operating leverage" story to the market, certainly a theme that myself and others have been touting for some time. Nice to finally see evidence of this happening.
Despite being a very strong quarter, Q1 was really no surprise (other than margins came in a bit stronger than expected). Management is keeping relatively conservative guidance for the balance of the year and 2012, but they really have no choice after disapointing investors repeadidly over the past few years (another year of failed promises means SK and team are booted from the company. I have no doubt that this is the case). However now it does appear that things have finally turned around. Every incremental dollar in sales is driving earnings growth and margin expansion. Costs are finally being contained and the ability to grow the distribution network is exceptionally cost efficient and can be achieved quickly.
As mentioned before, expect management to keep sandbagging expectations with a goal to achieving material sequential performance upside relative to Analyst/IBES estimates. It's a fine line, especially for a company with lumpy OEM orders, but all in all 2011 and especially 2012 are shaping up to be banner years for the company. The share price has not moved unfortunately, but give it time. As we've seen in the past HEM can rise 50%+ in only a few days as soon as some large instutions start to buy. Value the company on an EV/EBITDA basis (all equity cap. structure) with modest growth and this company looks exceptionally cheap (this is why many buy-side commentators are targetting a price of $4.00 or therabouts).