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Comtech Telecommunications (CMTL)

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·3 min read
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Comtech Telecommunications (CMTL) is a Zacks Rank #5 (Strong Sell) that designs, develops, produces, and markets products, systems, and services for communications solutions in the United States and internationally.

The stock has bounced since reporting earnings and after some buyout chatter, but investors should question the move higher as estimates for the upcoming quarter and year are falling.

About the Company

Comtech is headquartered in Melville, New York and employs over 2,000 people. The company was founded in 1967 and serves satellite systems integrators, wireless and other communication service providers, satellite broadcasters, prime contractors and system suppliers, medical equipment companies, aviation industry system integrators, oil companies, and domestic and international defense and government customers, as well as end-customers.

CMTL is valued at $670 million and has a Forward PE of 26. The company holds a Zacks Style Score of “B” in Value, but “F” in Momentum.

Q1 Earnings

The company reported decent earnings earlier this month, seeing EPS coming in as expected. While revenues came in higher than this time last year, the company guided FY21 lower, now seeing $580-590M v the $616M expected.

The CEO has some positive commented on the year:

"We are continuing to invest in new state-of-the-art production and engineering facilities as well as new next-generation wireless technology solutions that we believe our customers will want in the post-COVID-19 pandemic economic recovery. Looking forward, we are confident that we will have a strong finish to fiscal 2021 and achieve growth in fiscal 2022.”

However, analysts are as hopeful as estimates are starting to fall.

Estimates

Over the last month, the current quarters numbers have fallen from $0.49 to $0.37, or 24%. For the next year, estimates have fallen about 25% over that same time frame.

Comtech Telecommunications Corp. Price and Consensus

Comtech Telecommunications Corp. Price and Consensus
Comtech Telecommunications Corp. Price and Consensus

Comtech Telecommunications Corp. price-consensus-chart | Comtech Telecommunications Corp. Quote

Strategic Alternatives

The stock was trending lower, but the bulls got relief and a 20% bounce when investor Outerbridge sent a letter to the board with their desire to seek strategic alternatives. Outerbrige believe that the company remains significantly undervalued in the public markets due to poor corporate governance, a history of capital misallocation and a lack of succession planning.

This could lead to a change of management or a sale of the company, but for now it is unclear which direction the company will take.

Technical Take

The stock looked poised to break the 200-day MA after earnings. However, the letter from Outerbrige saved the bulls for the time being. The stock actually popped above the 50-day MA and is trading at three-month highs because of the potential sale.

The stock likely chops in the $24-26 area until there is some clarity on the strategic alternative. If no action comes, expect the 200-day to be tested again.

In Summary

Comtech is likely in for some choppy sideways action as investors and the board sort out their differences. While you wouldn’t want to be short the stock, its likely dead money in the near term.

Investors interested in the wireless equipment stocks should look at Clearfield (CLFD). The stock is a Zacks Rank #2 (Buy) and has pulled back significantly from recent highs.

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