CE Unterberg Upgrades Aeroflex

Analyst James McIlree thinks the company can expand its operating margins

CE Unterberg upgraded its investment recommendation on shares of Aeroflex (ARXX ) to buy from market perform. On June 25, the company announced plans to divest its shock and vibration control device manufacturing business.

Analyst James McIlree says that with the upcoming sale of this business, Aeroflex has completed its major pruning steps, and can focus on its core microelectronic and test solutions businesses. He notes the sale of this business raises Aeroflex's operating margin (excluding amortization) to 13%, in the middle of the company's 10% to 15% near-term goal. McIlree thinks that with greater volume, and a richer mix of standard products, Aeroflex can expand operating margins to 15% to 20%.

The analyst sees earnings per share (GAAP basis) of 32 cents in fiscal 2004 (ending June) and 50 cents in fiscal 2005. He set a $16 price target on the stock.

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