- The Washington Times - Monday, March 29, 2004

Several new defense-related contracts worth $7.7 million helped rally shares of Essex Corp., a Columbia, Md., optical communications equipment company.

The largest of the contracts announced last week was a $5 million delivery order under an existing contract with a federal government customer. The company would not name the agency.

Essex will work on an advanced optical processor project that will be used in the federal government’s defensive-missile radar systems.

The contracts follow strong 2003 financial results for Essex. Sales more than tripled in 2003 to $16.2 million from $4.5 million in 2002.

The company posted profits of $140,000 (1 cent per diluted share) compared with a loss of $1.41 million (29 cents) a year earlier. Diluted earnings per share include the value of convertible warrants and stock options.

Some analysts said the contracts strengthen Essex’s plans to move some of its products and services to the private sector.

Essex primarily serves the defense and intelligence agencies of the government, but it plans to roll out more products for commercial use by 2005 or 2006, said Chief Strategy Officer Ed Jaehne.

While the company will keep its core government work, future sales growth is expected to come more from commercial optical business, such as developing products used in fiber-optic networks, said James McIlree, an equity analyst with New York investment bank C.E. Unterberg Towbin.

“In a few years, we may see as much as 35 to 40 percent of sales come from commercial sources,” said Mr. McIlree, rating the stock a “short-term buy.” That rating predicts the stock will increase at least 20 percent in the next six to nine months.

Mr. McIlree does not own any shares of Essex, but C.E. Unterberg has a banking relationship with the company.

Essex should know later this year how well it can expand in 2005 and 2006, said Mark Jordan, a senior research analyst at the St. Louis, Mo., brokerage firm A.G. Edwards & Sons Inc.

“Depending on how good that will be, we should see stock prices hit the double-digit range,” said Mr. Jordan who advised investors to buy the stock.

The company’s stock closed yesterday on the American Stock Exchange at $8.30, up 8 percent from a week earlier at $7.70. The stock, which will begin trading on the Nasdaq Stock Market tomorrow, has dropped to $2.95 and surged to $10.25 in the past year.

Mr. Jordan does not own any stock, but A.G. Edwards also has done business with Essex.

There are concerns from analysts regarding how Essex will handle an expansion into the private sector while keeping its government customers.

“When you see a company emerging with a new technology into the marketplace, it’s all uncharted territory for the business,” Mr. Jordan said.

Essex has forecast sales to reach $35 million to $40 million this year before any acquisitions. The company is reviewing several acquisition candidates but has no immediate purchase plans, Mr. Jaehne said.

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