CMTL Underpromises, But Will It Overdeliver?
David White submits:
We all know how Apple (AAPL) has managed expectations in the past. Apple has given underestimated guidance, so that it could look good by beating expectations by good margins. It appears that Comtech Telecommunications (CMTL) is taking a page from Apple’s playbook. It has given extremely conservative guidance for the rest of 2009 in its conference call this quarter. It has further given conservative guidance for FY2010, even though it has no good way of knowing what that guidance should be until after April 2009. The Federal Budget comes out then. One analyst even commented in the conference call that giving this guidance at this time was inappropriate since the Federal Budget isn’t available yet. Apparently CMTL has deliberately thrown a wet blanket on analysts’ expectations of the company. The likely reason for this is that it wants to be able to meet or beat the analysts’ expectations as CMTL goes forward. I note it has beaten analysts’ EPS estimates for at least the last 4 quarters in a row by an average of 26.2%, although CMTL only beat by 4.5% this quarter.
Apparently this strategy has had at least partially the desired effect. The analysts’ mean target price before the conference call was $57. After the conference call it was $36.50. The analysts’ growth estimates for 2010 were 125% before the call. Currently the 2010 growth estimates are about 25% (Yahoo Finance). In the conference call CMTL was proposing a very conservative 15% growth rate in 2010. This did not take into account further commercial business developed in 2009 or further Federal business resulting from the April budget. It was clearly a “wet blanket”. Partly this was also a result of decreased future margin estimates. However, if further contracts are acquired, much of these decreased margin expectations would disappear. They are partly due to plants running at significantly less than full capacity. Most of the analysts seemed to think that more contracts will be acquired, especially after the Federal Budget comes out. Currently CMTL is estimating that the earliest parts of these new orders will ship in 2011, not 2010. Many analysts seemed to think this was much too conservative thinking.
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