High-flying Comtech Telecommunications Company Falls To Earth
With business rolling in for Comtech Telecommunications Company (NASDAQ: CMTL) the way that it is, we really had been expecting better results. That said, the Q4 results and guidance are not worth the 10% decline in share prices staged in the wake of the report. It is our view the company's decision to replace the CEO with the current president and COO Michael Porcelain spooked the market. Mr. Porcelain is slated to take the reigns at the end of the year and is being handed a healthy and robust business. If you're looking for a small-cap and/or dividend growth stock trading at a deep discount Comtech Telecommunications company is well worth the look.
Comtech Telecommunications Has Mixed Quarter, Guides Higher
Comtech Telecommunications Company reported a mixed quarter but one that reveals underlying business strength. The company's $145.81 in consolidated revenue is down -2.6% from last year and missed the consensus by 200 basis points but is accompanied by some very positive news. The company ended the year with a backlog of $658 million that was driven by $168.20 in new bookings during the quarter. Quarterly bookings bring the company's book-to-bill ratio to 1.15% and evidence of business acceleration if nothing else. Notably, the book-to-bill ratio and bookings were driven by 2 new large orders and one of them we find to be very interesting.
While the company failed to reveal the name of its new order, that new order is from a very large business that has plans to launch thousands of low earth orbit satellites into space over the next few years. We could be wrong, but this sounds a whole lot like Elon Musk’s Starlink project and could easily lead to some additional business if it is. As it stands, the company says the new orders have helped improve the company's revenue visibility and estimate the value of the total future business at over $1.10 billion.
“In addition, in connection with a multi-year contract award, Comtech received an initial $13.0 million order from a large new customer to customize Comtech’s next-generation broadband satellite technology that can be used with thousands of Low Earth Orbit (“LEO”) satellites reportedly being launched over the next several years,” says the company in the Q4 press release.
Getting back to the Q4 results, the company was able to widen its EBITDA margin by roughly 350 basis points despite systemic challenges facing the market. The company was also able to deliver GAAP earnings of $0.28 and beat the consensus by $0.04 despite the revenue weakness but the adjusted earnings left a little to be desired. The $0.23 in adjusted earnings fell short of the consensus by a quarter dollar.
Comtech Telecommunications also increased its guidance for revenue to a range of $580 to $600 million. This is above the consensus estimate but only slightly so is not as exciting as it could be. In our view, however, there is upside risk in the data assuming the company is able to follow through on expansion plans and capitalize on its growing backlog.
Comtech Telecommunications Yields 1.5%
Comtech Telecommunications pays a relatively safe 1.5% with shares trading at $23. We call it a relatively safe yield because the payout ratio is a safe 50% and the balance sheet is stable although not a fortress. The company is carrying some debt and has moderate leverage but free cash flow enough to sustain the payout at current levels. Assuming the company is able to capitalize on its large backlog there is a chance for a dividend increase down the road but we would expect to see a balance sheet and improvement before that.
The Technical Outlook: Comtech Falls To Support
Shares of Comtech Telecommunications fell more than 10% in the wake of the report but are confirming support at this new low level. Support is present at the $22 level and appears to be quite strong. Assuming today's candle closes at or near the high of the session we would expect to see this market close its open gap relatively soon. There is a chance for resistance at the $25 level but we see this stock retesting its recently set highs within the next 12 months. The Pricetargets.com analysts consensus is just over $27 or about 15% of upside.
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