ELTK: Eltek reports strong 1st quarter financial results which supports new price target of $11.00.
NASDAQ:ELTK
READ THE FULL ELTK RESEARCH REPORT
First Quarter 2023 Financial Results
Eltek Ltd. (NASDAQ:ELTK) reported strong 1st quarter 2023 financial results on May 18, 2023. Revenues increased 17.5% to $11.5 million from $9.8 million in the 1st quarter of 2022. The aerospace and defense markets continue to be one of the key drivers of revenue growth as customers continue to move PCB manufacturing needs from Asian markets to Western markets, primarily for security considerations.
Gross profit was $3.0 million (26% gross margin) compared to $2.0 million (20% gross profit) in the prior year period. Operating profit for the 1st quarter of 2023 was $1.6 million compared to operating profit of $0.7 million in the 1st quarter of 2022. Net income for the 1st quarter of 2023 was $1.6 million or $0.27 per fully diluted share which was a substantial increase from net income of $0.6 million or $0.11 per fully diluted share in the 1st quarter of 2022. EBITDA for the first quarter of 2023 was $1.9 million (17% EBITDA margin) compared to EBITDA of $1.1 million (11% EBITDA margin) in the 1st quarter of 2022.
The company maintains a strong balance sheet with $8.0 million in cash and short-term investments and total debt of $1.8 million. The company’s strong cash flow during the quarter allowed them to pay down $1.6 million in debt. Inventories were $5.3 million at year end, an increase of 3.5%. Net working capital was $13.4 million and shareholders equity was $22.0 million. In addition, the company has approximately $16 million in tax operating loss carryforwards to shield against future taxes. Backlog increased 10% during the quarter, the majority of which was related to higher margin Flex-Rigid PCBs.
CEO Eli Yaffe stated, “These results are a testament to the success of the Company's strategy to invest in innovative equipment to increase production volumes, and an unwavering commitment to product quality to meet customer satisfaction and provide technological solutions for every customer’s needs. As of today, our backlog has increased 10% from the beginning of the year. Throughout the quarter, we continued to execute on our accelerated investment plan and ordered three new plating lines valued at 5.5 million Euros. The deployment of these coating lines is scheduled for the latter half of 2023, 2024 and 2025, which will enable the simultaneous additional enhancement of production capacity, efficiency, and diversification of our product offerings. Concurrently with our accelerated investment plan, we are also allocating resources towards acquiring additional machinery and equipment, as well as enhancing our manufacturing procedures.”
Valuation and Estimates
Due to the strong gross margin results in the 1st quarter, we are raising our 2023 annual EPS estimate to $0.94 from $0.61. We also increase our 2023 revenue estimate to $46.3 million from $44.6 million due to strong revenue growth in the 1st quarter of 2023.
We are also increasing our price target to $11.00 as a result of gross margin targets being reached earlier than we anticipated. That price target, if achieved, would put the stock selling at roughly 10x our 2024 EPS estimate of $1.07. Based on the last closing price of $5.41, ELTK stock is currently selling at 5.0x our revised 2023 EPS estimate.
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