CMTL - Comtech Q4: Signs Of Turnaround

2023-10-14 08:27:35 ET

Summary

• Comtech Telecommunications Corp. has reported its Q4 and full-year results.
• Comtech is a global provider of next-generation 911 emergency systems and secure wireless and satellite communications technologies.
• The company aims to hybridize traditional communications with satellite communications.
• With visibility into double revenue, I rate the stock a speculative buy.

Comtech Telecommunications Corp. ( CMTL ) has just reported its Q4 and full-year results, as covered by Seeking Alpha here . Mr. Market seems to be liking what the company has reported, as the stock is up 16% pre-market as of this writing, after losing 7.50% during regular trading hours on Thursday, October 12th. Let's dissect the company's Q4 and full-year results in Comtech's version of The Good, The Bad, and The Ugly.

What Does Comtech Do?

According to reuters.com, " Comtech Telecommunications Corp. is a global provider of next-generation 911 emergency systems (NG-911) and secure wireless and satellite communications technologies. The Company operates through two segments, each of which have

• Satellite and Space Communications
  • Satellite Modem and Amplifier Technologies
  • Troposcatter and SATCOM Solutions
  • Space Components and Antennas
  • High-Power Amplifiers and Switches
• Terrestrial and Wireless Networks
  • Next Generation 911 & Call Delivery
  • Solacom Call Handling Solutions
  • Trusted Location and Messaging Solutions
  • Cybersecurity Training & Services.

Clear as mud? Okay, in simple English, Comtech is a communications company providing network solutions that aims to "hybridize" traditional communications (wired and wireless communication that pass through atmosphere) with satellite communications. I heard of this company in a recent discussion with a friend of mine who used to work at SpaceX and is intrigued by Satellite VSAT Technologies and other things that go way over my head. Luckily, I understand financials and general business better than I do this Satellite stuff. So, let's see what an analysis of the company's business and numbers say.

The Good

• Comtech beat Q4 EPS estimate by 9 cents or 45%, which is the biggest beat since January 2022. Revenue beat by a smaller but reasonable 6%, which is the biggest beat since January 2021. It remains to be seen whether this quarter is the one that sparked the company's recent earnings trend around.
• The company announced it had found a buyer for its Power Systems Technology [PST], which should get the company as much as $40 million. The company's cash and equivalents balance has fallen from $32.50 million in October 2020 to just $18.9 million at the end of the just reported Q4. The $40 million through this sale should add a nice buffer to the company's balance sheet.

• Getting back to the point about this quarter being the one that initiated a turnaround, FY 2023 also marked the first time in 4 years that the company reported YoY increase in net sales and gross margin after declining every year since 2019. I expect this momentum to continue at least for the next couple of quarters, as Comtech also reported having $662 million in funded backlog, once again the highest level since FY 2019.

• Comtech's revenue in FY 2023 was ~ $550 million and the company already has visibility to $1.1 billion in revenue with $662 million in backlog as stated above + $418 million worth of contracts not included in the backlog. When you also factor in expected growth in some of its key markets, Comtech's target of achieving double-digit annual revenue growth in FY 2024 and beyond looks attainable.

The Bad and The Ugly

For further details see: