Acton’s Psychemedics could prove to be lucrative sleeper


I first noticed Acton-based Psychemedics several years ago when its shares were yielding 6 percent. When I looked into it further, I found the company was profitable, too.

I was thrilled with the discovery. But I also wondered why nobody else seemed to notice.

Psychemedics, which is headquartered at Nagog Park, provides testing services for the detection of drugs through the analysis of hair samples. Services are sold to such entities as employers, for applicant and employee testing; treatment professionals; law-enforcement agencies; school administrators; and even parents who may be concerned (or suspicious) of a child’s drug use.   

With our nation’s opioid epidemic raging on, a company like this stands to get attention. That said, Psychemedics’ more recent news centers around a contract it won a couple years ago to supply testing for professional drivers in Brazil.

This week Psychemedics released its second-quarter results, and some may view them as being a little disappointing. Revenue was $9.7 million, flat with the same quarter a year ago. Net income came in at $900,000, or 16 cents per share, which was lower than the comparable year-ago figure ($1.6 million, or 30 cents per share).

Shareholders indeed punished the stock. It closed Wednesday at $25.84, which was already down a little bit from its 2017 closing high of $27.15 on July 11. The second-quarter results were announced after the markets closed on Wednesday, and on Thursday the stock slid by $4.60 (17.8 percent) to close that day at $21.24. Today (Friday), as I write this, shares have declined even further, to about $20.50.

A price of $20.50 gives Psychemedics a yield of about 2.9 percent. The heady days of 6 percent payouts are probably gone, but nearly 3 percent isn’t too bad.

Psychemedics has paid a quarterly dividend consecutively for 21 years — it makes this clear in the opening paragraph of its second-quarter earnings report. But said dividend hasn’t risen steadily, as has been the case with other companies covered here, like Enterprise Bank and Raytheon. In fact, it’s been stuck at 15 cents per share, per quarter, since 2012. In 2008 it was as high as 17 cents per quarter, with a special 50-cent-per-share payout in the fourth quarter of that year. The current payout ratio, according to statistics posted in Yahoo finance, is 40 percent, meaning the company pays out 40 percent of its profits in dividends. So there’s some room to grow it again.

CEO Raymond Kubacki noted in this week’s release that while the second-quarter results “may appear to be disappointing,” he added that they “do not reflect the underlying strength of the company.” He also noted that the second quarter is the first in which the company has a year-over-year comparison that includes its new Brazilian market.

Kubacki then presented a strong case for why the Brazilian deal is going to be lucrative going forward. I’ll give his case here, as taken from the aforementioned press release:

  1. It is a large and expanding market. The Brazil professional driver market is large by law (all professional drivers must pass a hair test in securing and renewing their driver’s license), and it is also expanding by law (the law requires that in September 2018, professional drivers must renew their licenses every 2½ years, instead of the current every 5 years). This virtually doubles the size of that major portion of the market. At the same time, the great success of this professional driver program (highlighted below) has the government discussing and considering possibly requiring a hair test for some other types of drivers licenses. These factors and results have given us confidence in the long-term attractiveness of this market.
  2. We have recognized from the beginning that there are greater uncertainties and continual challenges that accompany any new, large market as it develops, and we plan to address them, as they may occur. In the past quarter, we have made a number of strategic decisions and are implementing a number of strategic initiatives that we believe are in the best long-term interests of the company. Our market share remains strong and we have taken further strategic actions to solidify and strengthen our long-term position in the market.  In addition, we now have established a wholly-owned subsidiary in Brazil and have brought on a Country Manager, a Brazilian national to manage our business in Brazil and work with our distributor. We believe in the long-term attractiveness of this market and are willing to make short-term investments and sacrifices. As you know, public companies are often criticized for managing too much for the short term. With these strategic initiatives, we believe we are managing the company for the long term.

Kubacki then threw out some impressive numbers, including that highway deaths and disabilities in Brazil declined by 39 percent during the first year of the testing. Perhaps more telling, 31 percent of professional drivers chose not to renew their licenses, a sign that the bad apples are being weeded out.

Finally, the CEO goes on to mention that Psychemedics’ U.S. business is “gaining strength.” I would be interested in hearing in the not-too-distant future of other international opportunities; after all, if this technology is such a hit Brazil, why can’t it be anywhere else?

I don’t own Psychemedics at this time, but I am starting to pay closer attention again. There seems to be a lot of promise, and the company has shown a willingness to pay dividends to those willing to wait for growth. Dividends are a big part of this blog’s point of emphasis. A modest dividend now looks awfully good 10 years down the line if it gets steady increases while you hold shares.

The company’s other stats are pretty good. Psychemedics now sells for 13.8 times its last 12 months of earnings, and 2.6 times sales. It’s not particularly volatile, as its beta of 0.96 suggest it’s actually a smidge less volatile than the typical stock. It has nearly $7 million in cash, against $3 million in debt.

Lastly, Psychemedics is not a well known or heavily traded stock; its average daily volume is less than 30,000 shares daily. Even when investors reacted after this week’s earnings report, Thursday’s trading amounted to 128,500 shares, or about four times typical volume. That still isn’t a lot. And I like that, because if you’re in before the institutions, you get to ride their coattails once they decide the company is worth their attention.

Psychemedics, at the very least, appears to be a promising sleeper. Should its expectations in Brazil and beyond come to fruition, it could be a lot more than that.

Enterprise Bank, a model for internal growth, opens 24th branch



Lowell-based Enterprise Bank recently opened its 24th branch office, at 15 Indian Rock Road in Windham, N.H. 

It’s easy to forget that Lowell’s Enterprise Bank has yet to see its 30th birthday. Steady growth will do that, and then some.

Sometime in recent days — I can’t pin it down, although I drive by nearly every day — Enterprise opened its 24th branch office. It’s at 15 Indian Rock Road in Windham, N.H. That address sounds like it might be somewhere in the proverbial sticks, but it really isn’t. It’s Route 111, a major thoroughfare connecting commuters from Nashua and Hudson to I-93 on the other side of Windham, abutting the Salem line. The road is essentially the main street of Windham, a bedroom community that in recent years has chipped away at developing a commercial center. There’s a wine shop, a 24-hour fitness center, the expected gas station/convenience store and several other small businesses. There’s a Shaw’s supermarket up the street. Plenty of traffic.

But there’s also only one other bank in the vicinity, and I say that with some degree of hesitation. A Santander Bank branch sits well off the road about a half-mile east, hidden partially behind trees and the aforementioned Shaw’s. It’s pretty easy to miss, unless you’re looking for it.

So this is (another) great opportunity for Enterprise Bank to gain market share organically, something it’s been quite adept at ever since founder George Duncan decided to start the institution from scratch in the midst of a national savings and loan scandal, in 1988.

Did you know…. that Enterprise has posted net income of more than $20 million in the 12 months ended June 30? That’s roughly $1.77 per share. Perhaps more impressively, the bank seems to announce 8-11 percent year-over year growth in categories such as loans, deposits, net income and total assets almost like clockwork.

Ask Duncan (still whistling to work each weekday, at age 77) or CEO Jack Clancy how the bank manages to do this, and you get the same canned answer(s): contributions from our dedicated team, community involvement, relationship building and a customer-focused mindset.

Sure, it sounds corny. But it’s true.

Enterprise’s growth kicked up a notch last year, and  investors noticed — the stock closed out 2016 at $37.26, about 70 percent higher than its low for the year. This brought the bank’s price-earnings ratio up to the mid-20s, which is rather rich for a bank stock.

But while the growth has continued at a high level (the second quarter brought a 17 percent gain in net income, for example), shares have stagnated. They closed Tuesday at $33.98, down nearly 9 percent on the year. The price-earnings ratio has settled to about 19 — still not cheap, but not exorbitant for a proven grower.   

Longtime observers will point out the fact that this is a stock that rewards its investors with dividend hikes each year. Enterprise currently pays 13.5 cents per share, per quarter, or 54 cents per year. The yield is modest (1.55 percent),  and so is the annual increase — 2 cents per share, per year, since 2008. But for 10 years running, and I don’t have to remind you that this period encompasses a rather nasty economic downturn, you’ve been getting that raise. And longer than 10 years ago, the annual percentage gains were higher.

Has your job been as dependable in terms of issuing raises?

Suppose you bought shares on June 30, 2008. You would have paid about $11.75 apiece. The annual dividend then was 38 cents per share, or 3.2 percent. Not too bad. Now suppose you held those shares until now. Well, in 2017 you’re getting 54 cents per share for those same shares (which have tripled in value, by the way). That’s a yield of 4.6 percent, based on the 2008 price that you paid. See? The yield only looks puny when you compare with shares bought today. If you’re a buy-and-hold investor with a steady dividend payer (and increaser), the yields look a lot better.

A year or two ago, a colleague of mine asked me if it was a good idea to add to his Enterprise holdings. They were trading at about $24 at the time. I responded that I thought the price was a bit rich, that he would likely get them for a cheaper price a few months hence.

I was wrong. Dead wrong. It wasn’t until this year that the rally ended. Actually, more like plateaued. It just goes to show (again) that just because a stock goes up, doesn’t mean it won’t go up more. If it’s a well-run company, and pays an increasing dividend each year (the two often go hand in hand), there’s rarely a bad time to get a piece of the action.

I worked in Lowell for more than 20 years. I can say I would be hard-pressed to find a public company that’s as well-run as this one.      

Ocular Therapeutix reboots; investors hope to do the same


What’s happened over the past month at Bedford-based Ocular Therapeutix is a textbook example for the theory that putting money into the shares of biotech startups is not in any way investing. It’s gambling.

I mean, there’s nothing in the fundamental financials that suggests that such companies are in any way fit to absorb your hard-earned money. You’re just hoping that whatever secret potion is being developed gets a nod from the almighty Food and Drug Administration. Failing that, it is likely that the value of  your investment shrinks, perhaps considerably.

And so, Ocular (OCUL on the Nasdaq).  The company, as best I understand it, is developing products that heal wounds incurred during various eye procedures. Pretty niche, but certainly not unimportant.

Ocular has been around for more than a decade, but it’s still not close to profitability. For 2016, it posted a net loss of $43.3 million on revenues of nearly $1.9 million. See what I mean? Quite a gap there. The first quarter of this year (net loss of $15.7 million on revs of $475,000) suggests little headway in this area.

Nevertheless, shares began 2017 at $8.37 and moved into double digits by springtime. They topped out (in terms of daily closing price anyway) at $11.54 on June 22.

Approximately a month ago, Ocular learned that one of its flagship drugs, Dextenza, was rejected by the FDA. The Boston Business Journal reported that the reason was because some manufacturing issues caused some batches to become contaminated (the drug is designed to treat pain following eye surgeries).

Uh-oh. Goodbye, double-digit stock price. Shares nosedived below $6.50, where they have percolated in a fairly narrow range for the past couple of weeks.

And today (Tuesday), after the markets closed, Ocular announced that it was cutting about a fifth of its roster, believed to be some 25 workers. This is going to cost the company about $1.5 million, including severance and benefits, but will save money going forward (obviously) in the form of a slimmer payroll. And so, after gaining 13 cents during regular trading, shares of Ocular edged up another 13 cents, to $6.59, in after-hours activity.

Oh, and the usual legal procedures have ensued as well. Lawyers have been busy filing claims that the company knew more than it let on about the aforementioned manufacturing issues.  

And did we mention there’s a new CEO? To be fair, Ocular announced this was coming before the FDA rejection, but now that the cuts have been made, it’s official: In is Anthony Mattessich, and moving to executive chairman is outgoing CEO and co-founder Amar Sawhney.   

With all that said, if you were among those who bid shares up this spring in hopes of an FDA approval, you have been certainly disappointed. Furthermore, you likely know by now that getting shares back up to prior levels is highly unlikely to be accomplished with cost-cutting.

No, this company has to get you excited again. For what it’s worth, it’s not giving up on getting FDA approval for Dextenza. But next week, you get a second-quarter earnings announcement. And that’s probably not going to provide much cheer.

Buying shares of companies like this can be a rush, especially if a few clinical trials go the right way. But face it: Unless you are a insider among insiders, you really have no way of knowing how that will go (and even then you likely don’t). That’s not investing; it’s gambling.

Wilmington’s UniFirst names next CEO


Steven S. Sintros

UniFirst Corp., the Wilmington-based provider of workplace uniforms and laundry services, is going outside the founding family to replace its chief executive.

According to a report in the Boston Business Journal, the company, which posted fiscal 2016 sales of nearly $1.47 billion, has named Chief Financial Officer Steven S. Sintros as president and CEO, replacing the late Ronald Croatti.

Croatti died in May of complications from pneumonia, according to the report. He was 74 years old and had been chief executive since 1991. His father, Aldo Croatti, founded UniFirst in 1936.

Sintros, 43, has been with UniFirst since 2004. He has been CFO for eight years.    

Citing a regulatory filing, the Journal reported that Sintros will remain CFO until that position is filled.

Shares of UniFirst closed Friday at $142.25, down less than 1 percent so far this year. But as recently as February 2016, they were selling for less than $100 apiece.

Analysts are expecting UniFirst to report sales of about $1.58 billion for the current fiscal year, which ends this month. That would represent about a 7.5 percent increase from fiscal 2016.

UniFirst also rents and sells industrial wiping products, floor mats, facility service products, dry and wet mops, and restroom supplies.


IRobot share-price fears are exaggerated


Looks like Bedford-based iRobot Corp., maker of the iconic Roomba robotic vacuum cleaner (above at left) and other consumer products (including the Braava floor-washer, at right), was stricken by a case of the shorts Tuesday.

As described by Motley Fool (, noted short-seller Spruce Point Capital announced it has “re-established” its short position in iRobot, updating a report from three years ago in which it stated the stock could face downside risk of up to 50 percent (Aside: Given that shares have risen 150 percent in just the last year alone, they will have to fall a whole lot more than even 50 percent to allow for that prediction to come to fruition.)    

But somebody took the announcement to heart, as iRobot shares were clipped by more than 10 percent on Tuesday, closing at $90.65.

Spruce’s argument doesn’t sound all that strong to this amateur observer. It notes that iRobot benefited from a restocking of its supply chain, the annexation of its struggling defense business (remember the PackBot, of Afghanistan cave-searching fame?) and its acquisition of a Japanese distributor, all of which will make year-over-year comparisons tougher.

Well, perhaps. And certainly the past year’s 150 percent gain screams for some sort of pullback. But I’m not sure that, over the long  term, iRobot’s story isn’t still compelling.     

As the Motley Fool story also points out, Spruce is also concerned with “disruptive competition” coming to the U.S. market — in other words, more robot makers.

It says here, though, that being first matters, especially if you’ve got a good product. And iRobot was first (at least first to dominate the consumer robot market), and its 88 percent share of the robotic vacuum space speak volumes for its strength, and provides it a huge advantage going forward.

Second, the Asia opportunity is simply huge. China and India together have about eight times as many people as does the U.S., and as households form and modernize, iRobot’s first-in strategy is bound to pay dividends (or at least generate sales).

Valuation? OK, in some respects iRobot’s current share price is pretty rich. It currently represents 54 times expected 2017 earnings. But according to analysts covered by Yahoo Finance, iRobot is expected to post earnings of $1.67 per share this year and $2.54 next. While that 2018 number is still about 35 times earnings, given Tuesday’s closing price, the year-over-year earnings growth would be more than 50 times, which would seem to provide some justification for the lofty multiple.     

Tuesday’s closing price also represents 3.5 times sales, which is not an outrageous number for wide-moat technology company. I like sales ratios better because, while earnings can be jerked around, sales are sales. What you see is what you get.

I’m not sure I’d buy iRobot now — maybe a nibble just to get in for the long term. The pullback fears are real, but I see them as temporary. But if I already owned shares (I don’t), I wouldn’t be quick to head for the exits.


TRC shareholders OK $554M deal


Shareholders of TRC Companies Inc., an engineering, environmental consulting and construction-management firm based in Lowell’s Wannalancit Mills, have approved the definitive merger agreement with affiliates of New Mountain Partners IV, L.P.

Long-story-short, the approval means TRC will become privately held.

The deal, which was originally announced on March 31, calls for affiliates of New Mountain to pay TRC shareholders a total of $554 million, or $17.55 per share in cash.

Shares of TRC closed Thursday at $17.50, unchanged, in light trading.

The transaction is expected to be complete by month’s end, according to TRC. It leaves the Mill City with four publicly-traded companies — M/A-Com Technology Solutions Inc., Enterprise Bank, CSP Inc. and SoftTech Inc.  

TRC posted revenues of $481 million in its most recent fiscal year, which ended in June 2016.

Cisco’s Reinvention


Remember when California-based networking giant Cisco Systems was buying up companies in Greater Lowell and beyond? It was the networking boom of the late ’90s and early aughts, and Cisco was the biggest player, snapping up startups in its effort to build the biggest and baddest infrastructure for the sake of internet commerce. In 1999 alone, Cisco, then run by former Wang Labs executive John Chambers, bought 16(!) companies, including the $2 billion purchase of Lowell-based GeoTel. A year later, in what has to be considered a poster-boy moment of the insanity that was stock currency at the time, Cisco agreed to shell out $5.7 billion in stock (not a misprint) for Acton-based ArrowPoint Communications. Indeed, if Cisco didn’t create the technology itself, it would just buy whoever did.

Eventually, Cisco took all those Greater Lowell companies it acquired and planted them into one big campus off I-495 in Boxboro. It’s still there, and the company still houses more than 1,000 employees there (I think).

Well, the networking boom went bust, and while Cisco remained a big player in internet infrastructure technologies, sexier names (Apple, Google, et. al.) took over media attention in Tech Land.

But would you believe…. Cisco may now be considered a prudent choice for dividend investors? It’s true. Cisco, which didn’t pay a dividend at all until six years ago, has quietly ramped up its quarterly payout to the point at which it’s… well, rather competitive.

Earlier this year, the company announced that it was hiking its quarterly dividend from 26 cents per share to 29 cents. That comes to $1.16 annually, which is yield of 3.65 percent, based on Monday’s closing price of $31.76.

Hey, that’s not bad at all.

As you might guess, Cisco is not a big grower anymore. Its expected revenues for the year ending July 31 are somewhere around $47.9 billion, which would actually be a touch lower from the previous two years, both of which were above $49 billion. But thanks to consistent cost-cutting (hence my lack of certainty over Boxboro headcount), Cisco is expected to have a net profit this year of $2.38 per share, according to the average of 30 analysts covered by Yahoo Finance. Thus, Monday’s closing price comes to just 13.3 times earnings.   

Continuing the dividend shouldn’t be an issue, given that earnings remain about double the payout on a per-share basis.  

No, Cisco’s stock isn’t doubling in two years anymore (and then crashing back to Earth at some indeterminate time afterward). But it’s not sitting still either. In addition to continuing to command a large share of the networking space, the company has added other newer technologies, such as cloud services and cybersecurity, to its offerings.

Indeed, this one-time hare may have become a something of a tortoise. But it just might win the race.

Charles River Labs brushes aside PETA proposal

The Boston Business Journal is reporting that shareholders of Wilmington-based Charles River Laboratories have soundly rejected a proposal submitted by the People for the Ethical Treatment of Animals (better known as PETA) to stop doing business  with monkey suppliers that have been accused of violating animal-welfare laws.

Oddly enough, PETA is itself a shareholder of Charles River Labs. There’s your first clue. Public companies rarely seem to favor proposals that come directly from rank-and-file shareholders, and often have the clout to thwart them from becoming reality. Said proposals have a tendency to potentially threaten sales/profits, and so it is no surprise that management takes a dim view of the.  

Anyway, the report says the proposal came Tuesday, during the company’s annual meeting. The Journal reported that among nearly 40 million votes cast at that time, 95 percent of shareholders rejected the proposal. About 1 million — or 2.5 percent — voted for it, while a similar number abstained.

Charles River officials, who didn’t respond to the Journal’s request for comment, seemed to suggest the proposal was a moot point. The company, which breeds its own animals for research, had asked shareholders to vote against the proposal, arguing that it already requires its vendors to meet the standards of animal-welfare laws.

The company has seen things go its way thus far in 2017. Its stock is up nearly 16 percent, and its first-quarter revenues ($445.8 million) and net income ($1.29 per share, after one-time items are excluded) each beat analyst expectations.

Charles River forecasts full-year earnings of between $5 per share and $5.15 per share. At Friday’s closing price of $88.28, that’s more than 17 times forward earnings.

That’s a bit rich for me.  


I have never cared for the valuation metrics of Insulet Corp., the Billerica-based maker of the Omnipod insulin pump.

At just over $42 per share, the company sells for six and a half times sales. And it’s has never been profitable, although it trimmed its net loss from $48.7 million in 2015 to $10.7 million last year.     

Furthermore, holding the stock can get on your nerves, as its beta of 2.04 (according to Yahoo Finance) suggests that it has been twice as volatile as the typical security.

Yet, for the most part, I’ve been wrong to stay away, at least so far. Shares of Insulet have advanced nearly 12 percent so far this year, outpacing the market. It wasn’t all that long ago they traded in single digits.

And then there’s this interesting tidbit, initially announced in February and fleshed out today by the Boston Business Journal: Insulet has acquired a new facility in Acton’s Nagog Park and plans to move its manufacturing operations out of China (where it uses a contractor) and into the U.S.

The Omnipod is a tubeless insulin pump used to treat Type 1 diabetes.

A spokeswoman told the Journal that the company may even move its headquarters south on I-495, even though it’s only three years removed from its most recent move from Bedford to Billerica.  At 195,000 square feet, the Acton facility is nearly twice as large as the Billerica headquarters, and apparently contains suitable office space for corporate personnel.

Furthermore, the Journal reported that Acton voters recently voted to approve zoning changes that would allow Insulet, which currently employs about 640 people, to increase its space to as much as 300,000 to 350,000 square feet.

Clearly, the company is growing. It has said that it plans to add “hundreds” to its workforce (presumably, moving manufacturing in-house would seem to make that compulsory) and its 2016 revenue total of $367 million marked a 39 percent increase from the year before.  

Will the next step be profits?

Production in Acton is expected to begin in 2019.

Raytheon’s Tomahawk still a favorite after 25 years


As if we haven’t blabbed enough about what a great investment Raytheon has been, what with dividends going up 10 percent a year, new contracts being won far and wide, et al., last Thursday’s missile attack on a Syrian airfield is evidence that the momentum continues, at least in the short run.

Loren Thompson, a defense analyst at the Lexington Institute in Washington, D.C., told the Boston Herald’s Jordan Graham that the Trump administration’s decision to use long-range Tomahawk missiles against Syria sends the message that Raytheon remains a favorite of the U.S. military.

“The Tomahawk has three big advantages: It can fly a long distance, it is extremely precise and it doesn’t put U.S. pilots at risk,” Thompson told the Herald. “He (President Trump) wanted to send a signal to (Syrian President Bashar) Assad but he didn’t want to get too deeply involved in the country’s civil war.”

Citing Raytheon, Graham wrote that the Tomahawk can be “fired from a ship more than 1,000 miles away from its target, cruising not far above the ground and changing altitude based on the terrain until it hits its GPS-programmed target.”

The missile was first used more than 25 years ago, during Operation Desert Storm in Iraq in 1991. It’s been updated several times since, and costs a reported $800,000 apiece. The U.S. reportedly fired 59 of them, so… roughly a $47 million expenditure.

Raytheon shares closed Friday at $152.96, up $2.21. They’ve already risen 7.7 percent so far this year.