Military communications gear maker Comtech Telecommunications Corp. may have lost an important contract recently, but it will still book profits under an older contract through 2012, said Raymond James analyst Chris Quilty.
THE OPINION: Quilty said a forecast decline in revenue and earnings through 2012 had already been priced in, with shares trading at a lowly 2.9 times the expected $116 million in earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal 2011.
Negative sentiment on the shares may represent a buying opportunity, Quilty suggests.
This summer, Comtech lost a contract to supply the U.S. Army with satellite bandwidth, satellite terminals and other ground gear for its Blue Force Tracking-2 program, because a competitor underbid its $500 million proposal by 50 percent.
But Comtech still expects to post $91 million over two years through fiscal 2012 with EBITDA of $10 million to $15 million over that period due to its Blue Force Tracking-1 contract, Quilty said.
The company is also confident it will retain its Movement Tracking System contract, for revenues of $25 million to $30 million annually through 2013, he said.
Quilty said Comtech shares should trade at a multiple that is closer to its peers of six times fiscal 2011 EBITDA, so he raised his target price for the shares to $33 from $30, and maintained a "Strong Buy" rating.
THE STOCK: Comtech shares rose 44 cents, or 1.7 percent, to $26.80.