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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.
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.
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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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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.