Monday, March 18, 2019

Information Services Group (III)

Is Information Services Positioned For Growth In 2019?

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.

• 4Q 2018 miss due to unexpected
  items. The fourth quarter was impacted by a
  number of unexpected items, driving the top line miss. In total, these items
  reduced revenues by an estimated $4 million. Ex these items, III’s top line
  would have been closer to the $72 million range.
• RPA set for strong growth in 2019;
  Value not reflected in stock price. III’s RPA business ended 2018 at a $20 million plus run
  rate and is expected to end 2019 at a $30 million plus run rate. Given recent
  acquisitions in this space, the RPA business alone could be worth in excess of
  $60 mi…
  

  
  
  
  
  

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NOTE: investment decisions should not be based upon the content of
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Friday, March 15, 2019

Information Services Group (III)

Record 4Q Revenues But Why the Miss On Consensus Numbers?

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.

• Record 4Q and Full Year Revenues. III reported record 4Q revenue of $67.9 million and record
  full year revenue of $275.8 million. Adjusted EBITDA came in at $8.6 million
  for the quarter and $33 million for the year. Management had guided to revenue
  in the $280-$285 million range and adjusted EBITDA in the $35-$37 million range.
• Europe the Growth Driver Again. While Europe was up
  18% y-o-y to $25.3 million, the Americas business was down 3% to $38.1 million
  due to ongoing softness in the U.S. public sector and timing of client
  engagements, and Asia Pacific declined by $1.4 million to $4.5 mill… 

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Wednesday, March 13, 2019

KeyW Holding Corporation (KEYW)

Are needle moving contracts on the horizon.

KEYW Holding is a provider of mission-critical cybersecurity, cybersuperiority, and geospatial intelligence solutions to U.S. government defense, intelligence, and national security agencies. Its solution includes collection, processing, analysis, and dissemination of intelligence information in cyberspace and geospace domains.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.  

• Solid Fourth Quarter Results. KeyW
  reported a solid fourth quarter with revenue of $126.3 million and adjusted
  EBITDA of $12.0 million. For the full 2018, KeyW met or exceeded all financial
  expectations, with revenue of $506.8 million and adjusted EBITDA of $49.6
  million. The Company achieved a record level of awards for the year at $657
  million. 
• Organic Growth to Drive 2019. Organic
  growth is expected to drive 2019 results, although the absence of the flight
  service contract in 2019 will obscure the growth. Rev… 

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making any investment decision. 

Tuesday, March 12, 2019

Comtech Telecommunications (CMTL)

A Deeper Dive into 2Q19; Shares “On Sale” Following Recent Decline?

Comtech Telecommunications Corp. engages in the design, development, production, and marketing of products, systems, and services for advanced communications solutions in the United States and internationally. It operates in three segments: Telecommunications Transmission, Mobile Data Communications, and RF Microwave Amplifiers. 

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.

• Solid Quarter, But Stock Reacts Poorly. Comtech reported solid 2Q19 results, as we highlighted in our March 7, 2019 report. In spite of the operating results, the shares dropped over 14% on the news before recovering somewhat off the intraday lows.  
• A Reaction to Two Large Contracts. We believe the stock weakness can be tied to the delay in two large contracts CMTL is pursuing: BFT-2 and troposcatter. Both, multi-hundred million dollar potential awards. While in neither case have final awar… 

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Thursday, March 7, 2019

Kratos Defense & Security Solutions, Inc. (KTOS)

The Curtain Drops as the Valkyrie Takes Flight.

Kratos Defense & Security Solutions, Inc. provides engineering, information technology (IT) services, and warfighter solutions primarily in the United States. It operates in two segments, Kratos Government Solutions (KGS) and Public Safety and Security (PSS).

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.

• Ride of the Valkyrie. Yesterday,
  the XQ-58A Valkyrie completed its inaugural flight, a significant milestone in
  the program. According to the Air Force, the aircraft behaved as expected and
  completed 76 minutes of flight time. The Air Force plans a total of five test
  flights over two phases.
• Disruptive Technology with
  Potential Huge Impact for Kratos. The
  tactical drones market is anticipated to be significantly larger than the $6.2
  billion target drone market. With yesterday’s flight, Kratos is on its way of
  capitalizing on this huge opportunity…
  

  
  
  
  
  

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Thursday, March 7, 2019

Comtech Telecommunications (CMTL)

Exceeds 2Q Expectations, Raises Full Year, With Potential Upside. Another Acquisition?

Comtech Telecommunications Corp. engages in the design, development, production, and marketing of products, systems, and services for advanced communications solutions in the United States and internationally. It operates in three segments: Telecommunications Transmission, Mobile Data Communications, and RF Microwave Amplifiers. 

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.  

• Strong 2Q19 Operating Results. Net sales jumped 22.7% to $164.1 million, with Adjusted EBITDA of $23.2 million,  up 60.0%. GAAP EPS came in at $0.32 and adjusted EPS was $0.40. 2Q19 results exceed our, and management’s, expectations. Business momentum remains strong and the pipeline of opportunities continues to increase.
• FY2019 Targets Raised. Full year FY2019 revenue expectations now in the $645-$660 million range and Adjusted EBITDA in the $85-$89 million range. Compares to prior guidance of $625-$640 million and $84-$88 million, respectively. Notably, resu…

  
  

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Space Force: Necessary to Maintain U.S. Strategic Dominance?

(Note: related companies are at base of the
story and all the sources listed in the “Balanced” section)

On February 19
^th President Trump called for the creation of “Space Force,” a new U.S. Department of Defense branch. To reside as part of the Air Force, Space Force would control U.S. military operations in space. Space Policy Directive 4 directs the Defense Secretary to write a legislative proposal for Congress to set up the Space Force and create a civilian undersecretary of the Air Force for space. The Directive also re-commits the Trump Administration goal of creating Space Command, which would be a separate branch of the U.S. military. According to the Defense Intelligence Agency’s (DIA) Challenges to Security in Space, space-based capabilities provide integral support to military, commercial, and civilian applications. As longstanding technological and cost barriers to space have fallen, more countries and commercial firms are participating in satellite construction, space launch, space exploration, and human spaceflight.

The DIA report goes on to say, “Chinese and Russian military doctrines indicate that they view space as important to modern warfare and view counterspace capabilities as a means to reduce U.S. and allied military effectiveness.” Both reorganized their militaries in 2015, emphasizing the importance of space operations. Both have developed robust and capable space services, including space-based intelligence, surveillance, and reconnaissance. Both states are developing jamming and cyberspace capabilities, directed energy weapons, on-orbit capabilities, and ground-based antisatellite missiles that can achieve a range of reversible to nonreversible effects. Other nations, including North Korea and Iran, as well as non-state organizations, have develop and/or are developing similar capabilities.

Friday, March 01, 2019

Ducommun (DCO)

2018: The inflection year.

Ducommun Inc is a
leading global provider of engineering & manufacturing services for
high-performance products & high-cost-of failure applications used
primarily in the aerospace and defense, industrial, medical & other industries. 

Christian Herbosa, Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.  

• Q4 Revenue Gets a
  Boost. Fourth quarter revenues of $164.2 million beat our
  estimates of $160 million and were were a 15.4% or $21.9 million increase over
  Q4 2017. This revenue growth was strongly boosted by a $17 million increase in
  sales from the the commercial aerospace end markets, which includes the Boeing
  737 and Airbus A320 revenue ramp. 
• Restructuring
  Plan Completed. The restructuring plan, which was initiated in Q4 of
  2017, aimed to streamline operations, improve capacity utilization, and enhance
  margins. With its completion this quarter, the company is already halfway to
  its cost savings goals in 2018, and is on track to achieve its ann…
  
  
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Friday, March 1, 2019

Kratos Defense & Security Solutions, Inc. (KTOS)

Drones, drones and more drones to drive 2019; acquisition announced.

Kratos Defense &
Security Solutions, Inc. provides engineering, information technology (IT)
services, and warfighter solutions primarily in the United States. It operates
in two segments, Kratos Government Solutions (KGS) and Public Safety and
Security (PSS).

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.  

• Results for 2019 are expected to start off slow
  but then build throughout the year. The first quarter will be impacted by the
  partial government shutdown which delayed certain domestic and Foreign Military
  Sales contract awards and export license approvals required for international
  sales. FTT will add roughly one month to sales for the quarter. We are
  projecting the quarter to be similar to the first quarter of 2018, with revenue
  of $150 million, adjusted EBITDA of $11.5 million, and EPS of $0.01.
• We believe the pace of business will pick up
  throughout the year, especially on the drone side of the company. We see
  organic growth north of 10% with FTT contributing $45 million for the year. We
  are projecting 2019 revenue of $725 million, adjusted EBITDA of $73.6 million,
  and EPS of $0.21 per share. We would note, there is potential upside toour
  numbers as we have not included any potential UAS tactical revenue in our
  forecasts, nor have we included and potential upside from hypersonic and
  ballistic missile opportun…
  
  
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Wednesday, February 27, 2019

Vectrus (VEC)

Solid 2018 performance; on track for five year goal of $2.5B revenue and 7% EBITDA margin.

Vectrus Inc is a
U.S.-based company that provides services to the U.S. government. The company
generates nearly all its revenue from the United States Department of Defense.
The company offerings are categorized into three types; infrastructure
asset management services, logistics and supply-chain management
services, and information technology and
network communication services.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

RATING: OUTPERFORM

• Solid 2018 Results. For 2018, Vectrus reported record revenue of $1.279 billion, record operating margin of 3.8%, record adjusted EPS of $2.94, and record operating cash flow of $40.1 million. The results were driven by a combination of organic growth and the SENTEL acquisition.
• Remains on Track For 5-Year Goals. Vectrus remains on track for its 2023 goal of $2.5 billion of revenue and a 7% EBITDA margin. This is rou… 
  
  
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Wednesday, February 27, 2019

Ducommun International (DCO)

9.

Ducommun Inc is a
leading global provider of engineering & manufacturing services for
high-performance products & high-cost-of failure applications used
primarily in the aerospace and defense, industrial, medical & other
industries. 

Christian Herbosa, Research Analyst, Noble Capital Markets, Inc.

RATING: OUTPERFORM

A… 

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NOTE: investment decisions should not be based upon the content of
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making any investment decision. 

Tuesday, February 19, 2019

DLH Holdings (DLHC)

Call Confirms Solid Quarter, Moving Forward While Waiting on VA COMP.

DLH Holdings Corp is a provider of technology-enabled business process outsourcing and program management solutions in the United States. The company offer services to several government agencies which include the Department of veteran affairs, Department of health and human services, Department of defense and other government agencies. It operates primarily through prime contracts and also derives its revenue from agencies of the federal government, primarily as a prime contractor but also as a subcontractor to other Federal prime contractors.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

RATING: OUTPERFORM

• Solid
  Operating Performance. On the earnings call and in our 1×1 with management, the Company re-iterated the solid performance in 1Q19. DLH continues to garner additional value add business from its core VA and HHS customers.
• VA COMP
  Waiting Game. Nothing new on the VA COMP re-compete as its remains in a “quiet period.”  This contract represents nearly 40% of overall revenue. We believe DLH is well positioned to capture at least part of the contract in the re-compete. We continue to expect the re-compete to have minimal impact on DLH’s fiscal 2019 operating results…  
  
  
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Friday, February 15, 2019

Kratos Defense & Security (KTOS)

Recent industry transactions highlight value of unmanned systems.

Kratos Defense &
Security Solutions, Inc. provides engineering, information technology (IT)
services, and warfighter solutions primarily in the United States. It operates
in two segments, Kratos Government Solutions (KGS) and Public Safety and
Security (PSS). The KGS segment provides engineering, IT, and weapons systems
to federal, state, and local government agencies, primarily U.S. Department of
Defense.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for rating 

• Recent Industry
  Transactions. Two recent acquisitions in the unmanned vehicle space highlight the value of the business. FLIR Systems announced two acquisitions over the last two weeks and while FLIR did not provide financials, our back of the envelope calculations suggest the acquisitions were made in excess of 5 times revenue, above the 4 multiple we have used to value Kratos’s unmanned business.
• KTOS Unmanned System is a
  Game Changer. As we have previously highlighted, the UAS business is a game changer for Kratos. We believe it is not a question of if but, rather, when the Company will begin to reap the fru…
  
  
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NOTE: investment decisions should not be based upon the content of
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