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Adac Labs Is Feeling Lots Better, Thanks


Inside Wall Street

ADAC LABS IS FEELING LOTS BETTER, THANKS

Veteran health care investors might recall ADAC Laboratories, a manufacturer of medical-imaging equipment. But their recollections may not be pleasant ones. Red-hot in 1983, ADAC's shares traded as high as 27, only to collapse into the single digits later that year and to sink below $1 per share in 1990.

Well, ADAC is perking up. Since Thanksgiving, it has more than doubled to 3 1/4. Analysts Allan S. Roness and Stuart M. Linde of Fahnestock & Co. say they know why: new products, new management, and a new dividend. More important, they think the runup has just begun. "The stock could double this year," says Linde. "And next year it could go to 10."

SHUTTER MAGIC. ADAC's comeback centers on nuclear medicine imaging, in which doctors inject radioisotopes and use a "gamma camera" that detects the rays. In conjunction with a computer, the camera creates an on-screen image. ADAC's Dual Head Genesis is a two-head camera that produces a higher-resolution image than the older single-head cameras. ADAC's Pegasus workstation is a computer that processes the images and assists in diagnoses. A Pegasus upgrade is due out later this year, as are three new cameras.

The new-product cycle should put some zip into earnings. ADAC cleared less than $1 million profit, only 2 per share, in the fiscal year ended Sept. 30. Operating profits had increased 73%, but the company took a $2.8 million restructuring charge and a $1.75 million charge to settle a 1990 shareholder lawsuit. The suit alleged that the company and its former chairman and former president issued false statements regarding the company's financial condition--which ADAC denied.

The Fahnestock analysts estimate sales of $116 million and profits of $10 million, or 21 a share, in the current fiscal year. For next year, they see sales of $133 million and profits of $15 million, or 31 a share. If they are right, that gives ADAC a p-e ratio of 15, cheap for a medical-equipment maker. ADAC is up against big guns like General Electric and Siemens. Stan Czerwinski, recently promoted to chairman and CEO, says that ADAC is able to compete by stressing innovation and annual new-product introductions.

ADAC is in decent financial shape: $27 million in working capital and no long-term debt. It recently reinstated a 4 per share quarterly dividend. That's a 4.9% yield. Linde thinks the dividend, plus the expected profit pickup, will attract institutional shareholders that buy only dividend-paying stocks.

A few investors plunged in already. Several Fidelity mutual funds together own some 2 million shares, or 4.8%. Rockefeller Financial Services, which manages the family's investments, holds about 1.2 million shares, or 2.8%. ADAC employees own some 24%.JEFFREY M. LADERMAN


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