RF Industries Is Connecting The World Together
RF Industries (NASDAQ: RFIL) is no high-flying stock with dozens of analysts touting its good fortunes but that does not mean it isn’t worthy of such praise. The company is a small but integral portion of the greater telecom/communications industries producing key RF and microwave compatible electronic connectors and components. The company was well-positioned for the current market what with the widening coverage of legacy and the new 5G networks currently underway. That position got even stronger with the purchase of Microlab RF Components, a purchase that spurred the one analyst covering the stock to double-down on his position.
The analyst at B. Riley reiterated the firm’s Buy rating on the stock along with the $10 price target. The target amounts to a consensus of $10 and an upside of roughly 40% from the recent lows. This compares to a similar Buy rating for the greater Electronic Components sector (as indicated by Pricetargets.com) but wasn’t, unfortunately, a catalyst for higher share prices. At least not yet.
As for the deal to buy Microlab, it’s worth $24.25 million in cash and expected to be paid with cash on hand and debt. RF Industries has a rock-solid balance sheet so there are no red flags that we see. While the cash balance could be better the company is net-cash with very, very low leverage.
RF Industries Exceeds Expectations, Inflation Takes A Bite
RF Industries forecast sequential growth for the FQ4 period and we believe them but even we were surprised at just how strong the revenue growth was. The company reported $21.1 million in net revenue for a gain of 38% sequentially, 97.4% over last year, and 35% versus the 2019 period to set a new company record. The revenue beat the analyst’s expectation by 2700 basis points with only the impact of inflation to mar the results. In regard to earnings, both the GAAP $0.08 and adjusted $0.10 are up in the 1 and 2-year comparison but shy of the estimated by $0.02 and $0.03 respectively.
Looking forward, the company is expecting to strength to carry into the current fiscal year and is guiding the market higher. Execs are expecting to see a robust double-digit gain in revenue driven by organic and acquisitional strength.
"We are pleased to report our third consecutive quarter of strong sequential and year-over-year revenue growth for the fourth quarter, and significant growth in all our markets and channels for both the quarter and full fiscal year. The team did a great job to overcome the headwinds presented by the current state of the supply chain and increases in material and shipping costs. Our complete product offering enables us to sell into every wireless Tier-1 carrier's network, as well as many of the largest tower and neutral host companies.
The Technical Outlook: RF Industries Confirms Support
Price action in RF Industries has been volatile over the past few sessions but has confirmed support at a key level. Support is apparent at the top of a price window opened in early May 2021 and it appears to be strong. Assuming support is able to hold at this level we see the stock affecting a reversal and moving upward within the current range. The top of the range is near the $10 level and the current consensus and high price target among the analysts. If, however, price action is not able to hold at this level RF Industries may fall back to the $6.50 level or lower where it would be even more attractive.
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