Recognition: Will The Street See The Light?

For a company that makes equipment that "reads" even the most arcane printed characters, including the ubiquitous "bar" codes, Recognition Equipment isn't getting much recognition on the Street. "Investors don't fully understand the company's turnaround and bright prospects," says money manager Ed Wachenheim III.

The company's shares have been seesawing between 6 and 8 since August, even though Recognition has disposed of at least eight operations, sharply cut costs, and pared down debt. In the past three years, the company has been in the red. But this year, it expects to turn the corner. Some analysts think Recognition will post earnings of 30~ to 50~ a share for the Oct. 30 year.

"The stock is undervalued based on its current operations," says Wachenheim, managing partner at Greenhaven Associates. But the stock is worth much more, he contends, partly because of the company's newly acquired Plexus Software division. The Plexus software is designed to "capture" the image of documents electronically. The image, or picture, is stored on a disk for retrieval, reducing paperwork in complicated data processing tasks, explains Wachenheim.

"The market for imaging software is vast, including the insurance and health care industries," says Wachenheim. Plexus could increase the value of Recognition to $20 a share. Excluding the impact of Plexus, Recognition is already worth "at the very least $10 a share," he figures.

The smart money has been accumulating Recognition shares recently. One investor group, led by Central National-Gottesman and Asgot Securities, has raised its stake to over 10% from 8%. Prospect Group, an investment company, has distributed to its own shareholders a big part of its 50% interest in Recognition but still owns 14%. Recognition's management holds 10%.

One big investor believes that the company, whose stock traded as high as 23 in 1987, has become "quite attractive to some companies, such as Pitney Bowes and AT&T." He explains that AT&T, in particular, is interested because Recognition would be a "neat strategic fit" with its recently acquired NCR unit, a major player in the computer data processing and business systems market. Says this pro: "I know that a couple of senior executives favor selling the company at the earliest opportunity." An AT&T spokesman declined comment on Recognition. But he added that AT&T will consider any acquisition that may fit its overall strategic plan. Pitney Bowes declined comment. Recognition's co-CEO Bob Vanourek says the company, with its cash resources and game plan, seeks to expand through acquisitions.

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