Why The Buybacks At Diasonics?

Some smart-money investors are rediscovering Diasonics, a maker of X-ray and ultrasound systems, following the company's heavy stock repurchase in 1990. The shares, which climbed from 1 3/4 in November to 2 3/4, traded as high as 5 in 1989. One pro thinks management has "something up its sleeve" in buying back a total of 14.5 million shares since last summer, which has reduced shares outstanding from 72 million to 58 million.

Some analysts expect Diasonics to report earnings of 20~ a share for 1990, vs. a 29~ loss in 1989. That rebound has prompted whispers that management is considering a leveraged buyout. In November, 1989, Diasonics sold its Magnetic Resonance Imaging unit to Toshiba for $ 204 million, pocketing a profit of $70 million. Some of that money has gone into the stock buybacks.

One fund manager says that, based on projected 1991 earnings of 35~ a share plus cash of $1.20 a share, the stock is worth $ 4.70. He thinks Diasonics is attracting interest from Japanese and European companies, since foreign sales account for 50% of revenues.

Diasonics is big in Europe, where its mobile X-ray systems account for a large part of total sales. Its European unit, Sonotron Holding, "is solidly established in Germany and continues to perform well, with revenues up about 25% in 1990," says Value Line analyst Andrew Colonna. U. S. sales of ultrasound equipment have been sluggish. But Diasonics' Spectra system, said to have improved measurement and display capabilities, should remedy that. A Diasonics spokesman said he isn't aware of any LBO plans or takeover interest from other companies.

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