ChartWatchCentral Stock Picks

Mounting a Strong Defense

Date: May 12, 2003
Company: Allied Defense Group
Ticker: ADG
Price: $15.32
Target Price(s): $17.50, then possibly $19.30 and $22.50
Opinion: Bullish
Comments:  Between April and November 2002, Allied Defense Group (ADG) lost close to half its market value. Then after bottoming in mid-November, the share price transitioned into a sideways consolidation with support at approximately $14.90 and $14.30.

ADG reported earnings per share of $0.68 for the three months ended March 31st, a 196% surge from the $0.23 figure posted in the same quarter last year. This strong bottom line was supported by revenues which soared 152%, to $42.7 million.

General (Ret.) J.H. Binford Peay, III, Chairman and CEO of The Allied Defense Group is very pleased with the results for this first quarter. The CEO stated that the first two quarters are historically slow periods for the Company, with business picking up in the latter part of the year. This year, the reverse occurred. He believes the first half of the year should show significantly improved results, while the latter half of the year should reflect a decrease in business traditionally experienced in the first half of the year. According to the company, this performance has shifted in 2003 due primarily to delivery schedules on MECAR contracts. Despite the anticipated decrease in performance towards the end of 2003, the year-end results should still equal or exceed our performance from 2002.

We believe ADG is well-positioned to benefit from an increased need for security going forward. After all, they are a diversified international defense and security firm which: develops and produces conventional ammunition marketed to defense departments worldwide; designs, produces and markets sophisticated electronic and microwave security systems principally for European and North American markets; manufactures battlefield effects simulators and other training devices for the military, and designs and produces state-of-the-art weather and navigation software data and systems for commercial and military customers.

Since there is no Wall Street coverage at the moment, ADG's shares are trading in the vicinity of 8 times full-year 2002 earnings, 0.7 times sales and 1.2 times book value.

A potential negative: There is an off chance that a pre-9/11 upside gap near $9 might be filled before the shares start moving higher.


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