FEBRUARY 2012

T H E V A L U E L I N E S P E C I A L S I T U AT I O N S S E RV I C E

New Recommendation
For Conservative Investors
Mocon, Inc.
Recent Price: $16.09 Traded: NDQMOCO
Mocon Incorporated, this issues new recommendation for conservative investors, designs and manufactures testing equipment that detects, measures, and monitors gases and other chemical compounds. The company got its start in the 1970s, when its gas and vapor permeation instruments were adopted by the food packing industry. The instruments were used to detect small amounts of moisture in dry cereal and other food packaging. Since then, Mocons testing equipment has been adapted by the beverage, pharmaceutical, and consumer products industries, and it also has applications in oil and gas exploration, industrial safety, solar panels, and homeland security. The companys latest products measure parameters that help predict the shelf life of packaged foods. In addition to developing new products and entering new markets, Mocon has made several acquisitions over the past decade or so that have bolstered sales. The company is funding research and development to develop new products, and continues to pursue acquisitions. Mocon has grown steadily over the past several years, and its current dividend yield is 2.5%. Mocons products and services are grouped into four major categoriesPermeation Products and Services; Gas Analyzer Instruments, Sensors and Detectors; Packaging Products and Services; and Other Instruments and Services. Its permeation products include systems and services that measure the rate at which various gases and vapors transmit through a variety of materials. These products are designed to work under precise temperature, pressure, and relative humidity conditions. The principal markets for these products are manufacturers of packaging materials. These include makers of paper, plastic film, coatings, and containers. It also serves the users of these packaging materials, which includes companies in the food, beverage, pharmaceutical, and consumer product industries. Mocon has invested to develop new products for this sector. It recently introduced the AQUATRAN ultra-high sensitivity, trace moisture analyzer, which is used for testing in the manufacture of flat panel displays, solar panels, and electronics, to extend the life and quality of these devices. Other permeation instruments include OX-TRAN systems for measuring oxygen transmission rates, PERMATRAN-W systems for water vapor transmission rates, and PERMATRAN-C systems for measuring carbon dioxide transmission rates. Mocons systems are available with a wide range of options to suit each customers individual
2014-16 PROJECTED VALUATION Revenues: $57.0 mill. Shares Outstanding: 6,000,000 (7% increase) Pretax Margin: 25% Projected EPS Growth Rate: 16% (annualized, from 2010 to 14-16) Earnings Per Share: $1.75 Price-Earnings Multiple: 16.0 Three to Five-Year Price Target: $28

needs, including high or low throughput, price, sensitivity, and ease of use. Some customers do not wish to purchase instruments, and for them Mocon offers a range of consulting and testing services, and demand here is growing. Services consist primarily of testing film and package permeation for companies that prefer to outsource, are interested in evaluating Mocons instruments prior to purchase, or have already purchased products from Mocon but need additional capacity. Mocon maintains company-owned consulting laboratories in the United States, Germany, and China, and also collaborates with other labs in India, Canada, and Ireland. It plans to develop collaborations with laboratories in other countries, as well. For the gas analyzer segment, Mocon manufactures advanced gas analysis and monitoring instrumentation that is used in oil and gas exploration to detect the presence of hydrocarbon gas, for process gas analysis to detect contamination during the manufacture of specialty gasses, in industrial hygiene and safety (the detection of hazardous gasses in the workplace), and for environmental air monitoring to track the release or presence of toxic substances. The two principal instruments that Mocon manufactures for these applications are gas chromatographs (GCs) and total hydrocarbon analyzers. The companys newest GC, the BevAlert system, measures trace levels of contaminants in beverage-grade carbon dioxide used to carbonate beer, soft drinks, and water. Demand for the BevAlert system is growing as manufacturers of consumer beverages expand their operations into developing countries, to ensure their products are free of contaminants. In 2001, Mocon acquired Baseline Industries, a developer and manufacturer of gas analyzers. Mocon offers headspace analyzers and leak detection equipment for the packaging products and services segment. Headspace analyzers are used to detect the type and amount of gas present in the headspace of flexible and rigid packages, used to flush excess gas in packages. The markets for this technology include packagers of food, bevContinued on page 10

2012 Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties To subscribe call 1-800-833-0046. of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for each subscribers own, noncommercial, internal use. No part of this publication may be reproduced, resold, stored, or transmitted in any printed, electronic, or other form, or used for generating or marketing any printed or electronic publication, service, or product. Officers, directors, or employees of Value Line, Inc. (VLI), the parent company of Value Line Publishing LLC (VLP) and EULAV Asset Management (EULAV), may own stocks that are reviewed or recommended in this publication. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

FEBRUARY 2012

T H E V A L U E L I N E S P E C I A L S I T U AT I O N S S E RV I C E

MOCON INC. NDQ--MOCO

RANKS
PERFORMANCE Technical SAFETY BETA .75 9.00 6.38
Highest Above Average Average

RECENT PRICE
10.49 7.70 10.43 8.11

P/E RATIO P/E RATIO YLD 16.25 TRAILING 16.3 RELATIVE 1.04 DIVD 2.5%
12.75 8.25 14.10 10.00 11.83 6.70 10.04 6.74 13.85 9.00

VALUE LINE
17.67 11.97 High Low

1 2 3

. . . . Rel Price Strength

Shaded area indicates recession

LEGENDS 12 Mos Mov Avg

18 13 8 5 4 3 2
150
VOL. (thous.)

(1.00 = Market)

Financial Strength Price Stability Price Growth Persistence Earnings Predictability

B++ 75 55 75 2003 3.63 .59 .40 .26 .06 3.09 5.41 19.3 1.10 3.4% 19.6 21.2% 1.0 2.2 33.0% 11.3% 10.9 -16.7 13.2% 13.2% 5.0% 62% 2004 4.70 .73 .44 .27 .10 3.22 5.34 18.8 .99 3.2% 25.1 19.6% 1.5 2.4 32.6% 9.7% 11.6 -17.2 14.1% 14.1% 6.0% 57% 2005 4.55 .73 .55 .29 .04 3.48 5.40 17.0 .90 3.1% 24.6 20.1% .9 3.0 30.6% 12.3% 13.9 -18.8 16.1% 16.1% 8.1% 50% 2006 4.81 .85 .71 .30 .08 4.02 5.47 13.5 .73 3.1% 26.3 23.0% .7 3.9 33.6% 14.8% 16.2 -22.0 17.7% 17.7% 10.3% 42% 2007 4.96 .79 .67 .32 .08 4.59 5.53 17.6 .93 2.7% 27.4 21.6% .6 3.8 35.7% 13.9% 17.3 -25.4 15.0% 15.0% 8.3% 45% 2008 5.31 .83 .72 .34 .13 5.05 5.59 14.3 .86 3.3% 29.7 20.3% .6 4.1 32.9% 13.7% 17.9 -28.2 14.4% 14.4% 7.9% 45% 2009 5.15 .67 .53 .36 .06 5.03 5.17 16.2 1.08 4.2% 26.6 16.7% .6 2.9 31.2% 10.9% 19.6 -26.0 11.2% 11.2% 3.7% 67% 2010 5.99 .96 .84 .38 .31 5.40 5.27 13.5 .86 3.4% 31.5 20.2% .5 4.5 30.1% 14.3% 13.8 -28.4 15.9% 15.9% 9.0% 43% 2011 --NA ----NA ----------------

VALUE LINE PUBLISHING LLC SALES PER SH CASH FLOW PER SH EARNINGS PER SH DIVDS DECLD PER SH CAPL SPENDING PER SH BOOK VALUE PER SH COMMON SHS OUTSTG (MILL) AVG ANNL P/E RATIO RELATIVE P/E RATIO AVG ANNL DIVD YIELD SALES ($MILL) OPERATING MARGIN DEPRECIATION ($MILL) NET PROFIT ($MILL) INCOME TAX RATE NET PROFIT MARGIN WORKING CAPL ($MILL) LONG-TERM DEBT ($MILL) SHR. EQUITY ($MILL) RETURN ON TOTAL CAPL RETURN ON SHR. EQUITY RETAINED TO COM EQ ALL DIVDS TO NET PROF ANNUAL RATES of change (per share) 5 Yrs. Sales 5.0% Cash Flow 4.0% Earnings 8.5% Dividends 6.0% Book Value 9.5% Fiscal Year 12/31/09 12/31/10 12/31/11 12/31/12 Fiscal Year 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 Calendar 2008 2009 2010 2011

2012/2013

NA/NA

NA/NA

Bold figures are consensus earnings estimates and, using the recent prices, P/E ratios.

Note: No analyst estimates available.

1 Yr. 16.5% 42.5% 58.5% 5.5% 7.5%

ASSETS ($mill.) Cash Assets Receivables Inventory (FIFO) Other Current Assets

2009 13.8 4.6 4.3 1.0 23.7 6.3 4.6 1.7 4.9 30.3

2010 8.0 5.6 4.1 1.7 19.4 6.9 4.1 2.8 12.1 34.3

9/30/11 10.7 4.5 4.5 1.3 21.0 --3.0 14.6 38.6

INDUSTRY: Precision Instrument

BUSINESS: MOCON, Inc. engages in the design, manufacturing, marketing, and servicing of products, as well as in the provision of consulting services in the measurement and analytical instrument and services markets worldwide. The company offers permeation products, such as systems and services that measure the rate at which various gases and vapors are transmitted through various materials, primarily for manufacturers of packaging materials and users of packaging materials. It also produces gas analysis and monitoring products; headspace analyzer products to examine the amount and type of gas present in the headspace of packages; and weighing products that determine the weight of pharmaceutical capsules and tablets. Further, MOCON provides consulting and analytical services for manufacturers of foods, beverages, pharmaceuticals, plastics, chemicals, electronics, and personal care products; and sells various gas chromatographic instruments. Has 135 employees. Chairman, C.E.O. & President: Robert L. Demorest. Inc.: MN. Address: 7500 Boone Avenue North, Minneapolis, MN 55428. Tel.: (763) 493-6370. Internet: J.V. http://www.mocon.com. November 25, 2011
TOTAL SHAREHOLDER RETURN
Dividends plus appreciation as of 10/31/2011

QUARTERLY SALES ($mill.) 1Q 2Q 3Q 4Q 6.2 7.1 9.1 6.4 7.4 9.1 6.6 7.7 9.5 7.4 9.3

Full Property, Plant & Equip, at cost Year Accum Depreciation 26.6 Net Property 31.5 Other Total Assets LIABILITIES ($mill.) Full Accts Payable Year Debt Due .72 Other .53 Current Liab .84

EARNINGS PER SHARE 1Q 2Q 3Q 4Q .16 .07 .18 .24 .18 .09 .20 .22 .19 .16 .19 .27 .19 .21 .27

1.3 .0 2.8 4.1

1.9 .0 3.7 5.6

1.8 .0 4.0 5.8

QUARTERLY DIVIDENDS PAID 1Q 2Q 3Q 4Q .08 .09 .09 .095 .08 .09 .095 .10 .085 .09 .095 .10 .085 .09 .095 .10

LONG-TERM DEBT AND EQUITY as of 9/30/11 Full Year Total Debt None Due in 5 Yrs. None .33 LT Debt None Including Cap. Leases None .36 Leases, Uncapitalized Annual rentals NA .38 Pension Liability None in 10 vs. None in 09 Pfd Stock None Pfd Divd Paid None (100% of Capl)

INSTITUTIONAL DECISIONS to Buy to Sell Hlds(000) 4Q10 7 5 1958 1Q11 10 7 1948 2Q11 10 9 2006

Common Stock 5,412,885 shares 3 Mos. -7.22% 6 Mos. 8.27%

1 Yr. 18.05%

3 Yrs. 107.14%

5 Yrs. 88.19%

2012 Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties To subscribe call 1-800-833-0046. of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for each subscribers own, noncommercial, internal use. No part of this publication may be reproduced, resold, stored, or transmitted in any printed, electronic, or other form, or used for generating or marketing any printed or electronic publication, service, or product. Officers, directors, or employees of Value Line, Inc. (VLI), the parent company of Value Line Publishing LLC (VLP) and EULAV Asset Management (EULAV), may own stocks that are reviewed or recommended in this publication. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.

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10

Continued from page 8

and is the companys distributor in Germany. The companys newest product line, GreenLight, was developed in conjunction with Luxcel. GreenLight is a food safety product line that includes technology that enables, for the first time, within one to six hours, the detection of the presence of aerobic bacteria. Previous tests required 48 to 72 hours to complete. Mocon had not announced fourth-quarter and full-year 2011 results when we went to press. For the third quarter, sales were up 22% over the same period in 2010, to $9.5 million. The top line benefited from the introduction of products for its pacakage testing group, and positive capital spending trends in the industries that Mocon serves. Foreign sales accounted for 55% of the companys total sales, versus 59% the year before. Sales in Europe and South America were especially good, and more than enough to offset a decline in sales to Asia. (The Chinese government had placed a large order in 2010.) Each of Mocons three main business segments posted double-digit gains. Sales of permeation testing products and services were up 24%, and were 56% of total sales for the period. Sales grew for the testing of sustainable packaging materials, which are gaining favor because of their reduced environmental impact, as well as demand from the electronics industry to test water vapor permeation in flexible displays, solar panels, and optical LEDs. Sales of gas analyzers, sensors, and detector products and services rose 22%, and were 18% of Mocons total sales for the period. The majority of the increase was to the oil and gas exploration and environmental monitoring markets. Sales of packaging testing products and services were 19% of total sales for the period, and were up 44% from the year before. Demand was up for headspace analyzers and leak detection instruments, and one customer placed a large order of 25 test systems for package integrity that was worth $527,000. Sales of other products accounted for 7% of the top line, and were down 23% because of decreased demand for weighing and pharmaceutical products, partially offset by increased consulting and testing services, and sales of food safety products. The gross margin improved to 63.2% of sales, up from 59.9% of sales the year before, by leveraging sales and higher production volumes. Selling, general, and administrative expenses grew in tandem with the top line, while research and development costs were up 14.6%, to $597,000. Net income for the period was up 47%, to $1.5 million, for earnings of $0.27 a share, up $0.08 from the year before. The balance sheet at the end of the quarter listed current assets of $21.0 million and current liabilities of $5.8 million, for working capital of $15.2 million and a current ratio of 3.62 to one. Mocon has no long-term debt. We believe demand for Mocons testing products from the industries outlined here will remain strong for the next several years.We have set a three- to five-year price target of $28 a share. We also believe the company will be able to grow its dividend over that time, and maintain a yield of about 2.5%. We recommend the use of limit orders, as well as a stop loss of approximately 35%.

erages, and pharmaceuticals. Leak detection products are designed to detect leaks in sterile medical trays, food pouches, blister packs, and a wide range of other packages. Mocon offers three types of leak detection instruments. They include a non-destructive leak detector that can sense small amounts of carbon dioxide leaking from a package or tray. Another type of instrument detects leaks, and checks for seal integrity by applying and measuring pressure inside a package. A third type applies a vacuum to a package, and detects vacuum or gas flow changes. Leak detection products serve packagers of sterile medical products, pharmaceuticals, and food products. The newest product in the leak detection segment is the Op-Tech-O2 Platinum oxygen analyzer that incorporates proprietary sensor technology developed by Luxcel Biosciences Ltd. Mocon and Luxcel entered into a strategic partnership in 2010 that included a 2.5 million euro investment by Mocon to support Luxcels business development plans. This instrument uses a non-destructive method to measure the oxygen concentration in food, beverages, pharmaceuticals, and medical devices without piercing the package. This enables manufacturers to evaluate their products during manufacture and distribution, and track changes as they occur. This aids in determining shelf life, safety, and quality. Mocon offers consulting and analytical services on a special project basis for customers that need custom solutions. The services it provides typically relate to the absorption and diffusion of various compounds, shelf-life concerns, flavor or odor identification, and special permeation applications. The markets for its consulting services include manufacturers of foods, beverages, pharmaceuticals, plastics, chemicals, electronics, and personal care products. Mocon offers GC instruments and services through its Microanalytics Instr umentation Cor p. subsidiar y. Microanalytics has developed a variety of GC applications, including assays to determine petroleum and petrochemical purity, and aroma and off-odor analysis for the food, beverage, and packaging industries. It can integrate GCs and other components that are purchased from third parties to develop multi-dimensional GC analyzer systems. Microanalytics was acquired in 1998. Mocon also manufactures weighing products that automatically determine the weight of pharmaceutical capsules and tablets, and reject those that are out of acceptable limits. Its VERICAP high-speed capsule weighing system can run at rates of up to 2,000 capsules per minute, and can easily be integrated into a pharmaceutical factory production line. It also offers the AB automatic balance weighing system that is designed for off-line use, and it sells tablet inspection systems and blister packaging-related equipment through its Lippke subsidiary. Lippke was acquired in 2004,

2012 Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties To subscribe call 1-800-833-0046. of any kind. THE PUBLISHER IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for each subscribers own, noncommercial, internal use. No part of this publication may be reproduced, resold, stored, or transmitted in any printed, electronic, or other form, or used for generating or marketing any printed or electronic publication, service, or product. Officers, directors, or employees of Value Line, Inc. (VLI), the parent company of Value Line Publishing LLC (VLP) and EULAV Asset Management (EULAV), may own stocks that are reviewed or recommended in this publication. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.