Market Overview

Jefferies Sees Early Signs Of Recovery For Comtech


While there are early signs of recovery for Comtech Telecomm. Corp. (NASDAQ: CMTL), the business seems “unusually sensitive” to the strength in the US dollar and oil price volatility, Jefferies’ George C. Notter said in a report. He initiated coverage of the company with a Hold rating and a price target of $14.

The current risk/reward for Comtech’s stock appears balanced in view of its valuation versus the peer group, potential merger integration risk, trading liquidity as well as “some modest potential for a dividend reduction,” analyst George Notter mentioned.

Potential For Business Recovery Ahead

Comtech’s April quarter book-to-bill was 1.12x, marking the first quarter in which it was greater than 1x since the April 2015 period. “While we like the early signs of recovery in the business, we realize that Comtech’s business is unusually sensitive to USD strength and oil volatility,” Notter wrote.

The analyst further noted that the acquisition of TeleCommunication Systems, Inc. (NASDAQ: TSYS) offers a number of benefits, including:

  • Additional scale
  • Customer and market diversification
  • A stronger government contract performance record
  • Merger synergies

Valuation Support From Dividend Yield, But Risk Remains

The dividend yield is currently 8.9 percent. “Looking forward, management has expressed confidence in the dividend and expects to keep it at the current $1.20/share level…The risk, in our view, includes the risk of a future dividend cut – particularly if business trends remain sluggish,” Notter commented.

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Latest Ratings for CMTL

Sep 2019MaintainsNeutral
Sep 2018MaintainsOutperformOutperform
Jun 2018MaintainsNeutralNeutral

View More Analyst Ratings for CMTL
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Posted-In: George C. Notter JefferiesAnalyst Color Initiation Analyst Ratings


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