Comtech Telecommunications Corp Valuation – Initial Coverage $CMTL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Comtech Communications Corp (CMTL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Comtech Telecommunications Corp. designs, develops, produces and markets products, systems and services for communications solutions. The Company operates through two segments: Commercial Solutions and Government Solutions. It offers communications solutions, including command and control technologies, safety and security technologies and enterprise technologies. Its Commercial Solutions segment provides satellite communications (such as satellite earth station modems and traveling wave tube amplifiers), public safety systems (such as next generation 911 technologies) and enterprise application technologies (such as messaging and trusted location-based technologies). The Government Solutions segment includes command and control technologies, troposcatter technologies, and radio frequency power and switching technologies. It serves system and network suppliers in the global satellite, defense, broadcast and aerospace industries, and the United States federal government, among others.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CMTL – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $251,244,710 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.65 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -81.72% Fail
6. Moderate PEmg Ratio PEmg < 20 22.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.55 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.07 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.48
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $6.94
MG Value based on 0% Growth $4.07
Market Implied Growth Rate 7.10%
Current Price $10.87
% of Intrinsic Value N/A

Comtech Telecomm. Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.52 in 2013 to an estimated $0.48 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.1% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Comtech Telecomm. Corp. revealed the company was trading above its Graham Number of $9.63. The company pays a dividend of $1.2 per share, for a yield of 11%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.71, which was below the industry average of 68.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.38.

Comtech Telecomm. Corp. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$6.38
Graham Number $9.63
PEmg 22.71
Current Ratio 1.65
PB Ratio 0.55
Current Dividend $1.20
Dividend Yield 11.04%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $292,908,000
Total Current Liabilities $177,864,000
Long-Term Debt $237,952,000
Total Assets $903,452,000
Intangible Assets $567,048,000
Total Liabilities $442,164,000
Shares Outstanding (Diluted Average) 23,385,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.21
Jul2016 -$0.46
Jul2015 $1.42
Jul2014 $1.37
Jul2013 $0.97
Jul2012 $1.42
Jul2011 $2.22
Jul2010 $1.91
Jul2009 $1.73
Jul2008 $2.76
Jul2007 $2.42
Jul2006 $1.72
Jul2005 $1.42
Jul2004 $0.92
Jul2003 $0.53
Jul2002 $0.07
Jul2001 $0.38
Jul2000 -$0.31
Jul1999 $0.51
Jul1998 $0.12
Jul1997 $0.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.48
Jul2016 $0.72
Jul2015 $1.37
Jul2014 $1.42
Jul2013 $1.52
Jul2012 $1.86
Jul2011 $2.12
Jul2010 $2.09
Jul2009 $2.12
Jul2008 $2.16
Jul2007 $1.71
Jul2006 $1.21
Jul2005 $0.86
Jul2004 $0.49
Jul2003 $0.26
Jul2002 $0.14
Jul2001 $0.17

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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