Comtech: Weak earnings growth and bearish chart ahead of Q4 earnings Thursday (CMTL)

Charday Penn

Earnings season starts in just two weeks, but this week we’re hearing from a host of companies across all industries and geographies. Big names like NIKE (NKE) and Micron (MU) are reporting results, but some smaller players could also swing the portfolios of individual investors.

A small tech company with a new CEO that recently landed a major overseas military sales contract announced its fourth-quarter earnings date Thursday evening.

This week’s earnings schedule

This week's earnings schedule

Earnings Whispers

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

Despite positive news last week that the company landed a new military sales contract, equities remain significantly lower year-over-year. The stock rallied in August when it was announced that Ken Peterman was named the new CEO. Finally, there have been speculative talks about takeovers with this small company.

New York-based $273m market cap communications equipment industry company in the information technology sector has negative 12-month GAAP earnings, but pays a dividend yield of 4.0 %, according The Wall Street Journal.

As for earnings and valuation, Comtech sports an “A” valuation rating, but profitability is only a “C” while growth is a big “F”, according to Looking for Alpha. CFRA Research shows earnings per share bouncing between the flat line. On a yearly basis, EPS is seen improving, albeit stubbornly slowly, through 2023. Given the slow growth, it’s hard to get excited about this tech company right now.

Comtech: earnings and key profitability ratios

Comtech: earnings and key profitability ratios

CFRA Search

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

Corporate events calendar

Corporate events calendar

wall street skyline

Digging into earnings forecasts, data from Option Research & Technology Services (ORATS) shows a consensus EPS forecast of -$0.10, which would be a steep decline from the year’s positive per share. last. CMTL has also missed analysts’ earnings expectations in each of the last three reports – another arrow in the bears’ quiver.

What really grabs my attention is the large implied move in the stock price. ORATS options news shows a huge post-earnings stock price move of 15.3% expected using the nearest parity straddle. The last two earnings reactions were large at more than 18% each. With a bearish fundamental outlook and weak technicals (see below) but with expensive options, one way to play this is with a bearish sell spread or perhaps a bearish risk reversal strategy.

CMTL: expensive options because implied volatility is high

CMTL: expensive options because implied volatility is high


The technical grip

I see CMTL shares heading towards $9 in the near term. It was an escape point in July. It could also have another downside to the June low of $8.42.

The problem is that there is strong resistance around $13 on all rallies with another major supply layer in the $20-$22 range.

With an overall downtrend firmly in place, I see downside risks heading into and through earnings this week.

CMTL: Stocks continue to fall, eye support at $9

CMTL: Stocks continue to fall, eye support at $9

Stock charts

The essential

With tepid earnings growth, lackluster earnings history and a declining share price, I’m leaning to the bearish side this week as Comtech reports quarterly results Thursday night. Buying stocks around $9 could be a trade, but long-term investors should steer clear of it.

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