Comtech: Weak Profit Growth And A Bearish Chart Ahead Of Q4 Results Thursday (CMTL)


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Charday Penn

Earnings season is only two weeks away, but this week we’re hearing from a variety of companies across different sectors and geographies. Big names like NIKE (NKE) and Micron (MU) report results, but some smaller players could also shake the portfolios of individual investors.

A small tech company with a new CEO that recently secured a key foreign military sales deal has its Q4 earnings date Thursday night.

This week’s results calendar

This week's results calendar

results whisper

According to CFRA Research, Comtech Telecommunications Corp. (NASDAQ:CMTL) together with its subsidiaries, designs, develops, manufactures and markets communications solutions products, systems and services in the United States and internationally. It operates through two segments, Commercial Solutions and Government Solutions.

Despite positive news last week that the company got hold of a new one military contract of sale, shares remain significantly lower year-on-year. The stock had recovered in August when this was announced Ken Peterman was appointed the new CEO. After all, there have always been speculative takeover talks with this small company.

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New York-based communications equipment industry company with a $273 million market cap within the information technology sector reports negative 12-month GAAP earnings but pays a 4.0% dividend yield The Wall Street Journal.

In terms of earnings and valuation, Comtech has an “A” rating rating, but profitability is only a “C,” while growth is a big, fat “F.” Alpha wanted. CFRA Research shows earnings per share are bouncing between the zero line. On a yearly basis, earnings per share are projected to improve through 2023, albeit at a stubbornly slow pace. Given its sluggish growth, it’s hard to get excited about this tech company right now.

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Comtech: Earnings and profitability metrics

Comtech: Earnings and profitability metrics

CFRA Research

Looking ahead, data from Wall Street Horizon shows a confirmed Q4 earnings date on Thursday, September 29 AMC with a conference call immediately following the release of the report. You can listen live here.

Events calendar for companies

Events calendar for companies

Wall Street Horizon

As for earnings expectations, data from Option Research & Technology Services (ORATS) shows a consensus EPS forecast of -$0.10, which would mark a sharp decline from last year’s positive amount per share. CMTL has also missed analyst earnings expectations in each of the last three reports – another arrow in the bears’ quiver.

What really strikes me is the large implied price action. ORATS options info shows a whopping 15.3% stock price swing after the win expected using the next expiring at-the-money straddle. The last two win reactions were large at over 18% each. With a bearish fundamental outlook and weak technicals (see below), but with expensive options, one way to play this is with a bear put spread or perhaps a bearish risk reversal strategy.

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CMTL: Expensive options as implied volatility is high

CMTL: Expensive options as implied volatility is high

ORATES

The technical recording

I see CMTL shares heading to $9 in the near term. That was a breakout point in July. It could also have another downtrend to the June low of $8.42.

The problem is that there is strong resistance on any rallies around $13, with another layer of larger supply in the $20-$22 range.

With the overall downtrend firmly in place, I see bearish risks in and through earnings this week.

CMTL: Stocks continue falling, eye $9 support

CMTL: Stocks continue falling, eye $9 support

stock charts

The final result

Given tepid earnings growth, a weak earnings beatrate history and a declining stock price, I’m leaning towards the bearish side this week as Comtech reports its quarterly earnings results on Thursday night. Buying stocks at $9 could be a deal, but long-term investors should stay away from this deal.



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