Comtech Gets A Buy Rating, $19 Price Target From Ladenburg Analysts

Ladenburg Thalmann has initiated coverage of
Comtech Telecomm. Corp.CMTL
with a Buy rating and price target of $19, implying an upside of 41 percent.

Positives From Acquisition

Comtech acquired TeleCommunication Systems, Inc. (TCS) in February, nearly doubling its revenue and reduced its international exposure to 32 percent from 56 percent, thereby lowering the risk profile of the business.

Further, the acquisition converted Comtech from a provider of amplifiers and modems used in satellite communications technology to a diversified advanced communications solutions provider.

"The company has multiple opportunities for faster growth. Many of CMTL's lines of business have an opportunity to realize accelerated revenue growth. The company's wireless back-haul solutions should benefit from the roughly 100 high-throughput satellites being launched over the next decade," analyst Glenn Mattson wrote in a note.

Related Link: Comtech Telecommunications Granted $45 Million Contract To Provide Statewide ESInet

Mattson noted that the Troposcatter satellite systems are poised to benefit from multiple deployment opportunities, including a possible larger follow-on order from the U.S. Army.

The NG 9-1-1 market is experiencing solid growth with the ESInet software market poised to grow 33 percent over the next four years, according to the research firm Frost and Sullivan.

However, Mattson said "unjustly excessive balance sheet concerns are weighing on the stock."

Facts And Figures

As of the third quarter 2016 results, the company had $272 million in net debt and raised $94 million in June 2016. The analyst forecast about $80 million will be used to immediately pay down debt. The company has committed to continue paying its $1.20 dividend in F2017.

Mattson expects 2016 EPS of ($0.80) on revenue of $425 million and 2017 EPS of $0.41 on revenue of $644 million.

"We forecast EBITDA to rise to $69 million in F2017, up from $44 million in F2016. That said, CMTL will come close to tripping its debt covenant in 3Q:F17 should our forecast (which is conservatively below management's guidance) play out," Mattson highlighted.

"While this scenario presents little room for error, we think the company has ample levers to pull, such as reducing working capital to ensure that no covenants are breached. We think as investors get better clarity on this issue, the stock's deep valuation discount will reverse," the analyst added.

Shares of Comtech closed Thursday's regular trading at $13.51 and were seen trading up 3 percent at $13.91 on Friday morning.

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Posted In: Analyst ColorLong IdeasNewsPrice TargetInitiationAnalyst RatingsMoversTechTrading IdeasFrost and SullivanLadenburg Thalmanntelecommunication systemsTroposcatter
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