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CUI pops after analyst initiates coverage with Buy rating, sets price target

Last updated: 15:27 17 Apr 2018 EDT, First published: 12:10 17 Apr 2018 EDT

An electronic circuit board
CUI's tie-up with California distributor Master Electronics is highly beneficial

Boutique investment bank B. Riley FBR initiated coverage Tuesday on CUI Inc. (NASDAQ: CUI), the Oregon-based electro-mechanical and power components manufacturer, with a Buy rating and soaring price target.

B. Riley FBR analyst Liam Burke recommended the stock and issued a 12-month US$6 price target.

CUI Global shares jumped over 3% to US$2.71 in midday trading.

“The engineered, applications-specific nature of CUI’s products enables the company to reduce the pressure on gross margins that is often caused by product commoditization,” wrote Burke in the research note.

The analyst also highlighted “catalysts” that would boost profits.     

“The company’s strategy is to drive revenue and margin growth by building on its base of core products and to expand its product offerings through innovation, new applications for existing technologies, and selective acquisitions. We see a clear catalyst ahead, as we believe that significant rollouts of the GasPT analyzer and ICE systems should have a positive effect on the balance sheet and share price,” wrote Burke.

The analyst noted that "a solid base" of traditional products and the ramp-up of both ICE and the GasPT analyzer would translate into more consistent earnings growth. Burke added that the firm’s valuation reflected “a sustainable business model” with above-average revenue and earnings growth, “increasing operating margins, steady free cash flow generation, and improving return on invested capital.”

Read: CUI Global set for strong 2018 as Brexit troubles subside

Two weeks ago, CUI Inc. inked a tie-up with Master Electronics, a large California-based distributor, to sell and market CUI’s full suite of power and electro-mechanical parts, audio and USB connectors, rotary encoders, as well as speakers and microphones.

Partnering with Master Electronics allows the firm to introduce its products to new customers.

CUI Inc. recently received an order for its ICE Block units and ICE Switches worth US$2.9mln. The order is for 400 ICE Blocks and additional ICE Switches, which are expected to be delivered to the unnamed customer in the fourth-quarter of 2018.

Last month, uncertainty about Britain’s exit from the European Union hit the revenues and profits of CUI Global Inc., CUI Inc’s parent company, as it reported that its revenues fell to US$83.3mln, from US$86.5mln a year earlier, for the 12 months ended Dec. 31, 2017.

A dip in margins to 33.5% from 37.3% a year ago weighed on profits, which dropped to US$27.9mln from US$32.3mln a year earlier.

-- Correction: The story has been updated to correct the price target to US$6 per share.

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