TAT Technologies Comes at a Steal

Includes: BA, HON, LMT, TATT
by: Mary Daniel

TAT Technologies (NASDAQ:TATTF) is an Israeli-based company that engineers and manufactures products for civil and military applications. The company's product line includes heat exchangers, cooling systems, cold plates, air conditioning systems, and fuel systems. Customers include Lockheed-Martin (NYSE:LMT), Boeing Co. (NYSE:BA), Cessna Aircraft Co., and Liebherr Aerospace.

Many investors however are still weary of investing in Israel due to the Palestinian conflict. It seems as though every time Hezbollah or Hamas launches a new attack, investor confidence in this emerging market is lost. What investors need to realize is that the conflict is well contained. Geographically the majority of conflict takes up only a small corner of the country. Also, the Israeli military is one of the most effective and efficient in the world. Not to mention, the company we are speaking of here manufactures products for military applications. And since it seems that Israel is continually in some state of conflict, TAT Technologies should be a safe bet.

The stock comes at a steal with a current share price of $7.77. In addition, the stock paid out a cash dividend in March of 2.29 giving a projected yield of 29.5%. Not bad for a small-cap Israeli-based company. Historically, dividends have not been paid on a regular basis. Over the past couple of years revenue has grown approximately 25% and current assets have nearly doubled. On August 18, the company reported its second quarter 2009 results. North America accounts for TATTF's largest source of revenue, followed by Europe and Israel, respectively. Total revenues from the three month period decreased 7.6% from the second quarter 2008. Cost of revenues decreased only 3.77%. Considering the economic downfall that occurred late 2008 and also the fact that the economy is in large still recovering, one cannot evaluate the company based on these numbers alone.

Just this past July TAT completed a merger with Limco-Piedmont Inc. and following the merger appointed a new director and CEO for the subsidiary. TAT, which previously owned 61.8% of Limco's common stock, acquired all of the shares of Limco's common stock held by the public. Pursuant to the merger agreement, Limco's common stock was converted into one half of an ordinary share of TAT. Since the merger the stock's growth pattern has been extremely consistent.

One of TAT's major competitors is Honeywell International Inc. (NYSE:HON). The two stocks seem to be sharing the same moving average over the past three months, completely in line with one another. TATTF (blue line) vs HON (yellow line) over recent 3 month periodClick to enlarge
Most analysts are bullish on Honeywell. So carrying that over to TAT Technologies, it seems only wise to take a bullish stance here as well. Still, it is difficult comparing a large cap company to a small-cap company.

TAT's largest revenue sources come from North American customers such as Lockheed-Martin and Boeing. Lockheed's revenue and cash from operations has grown consistently over the past three years. And they are still a leader in the defense industry with important government contracts. Lockheed needs TAT's products in order to fulfill these contracts. Though Boeing's revenue decreased in 2008, the second quarter numbers for 2009 are already remarkably better than this time last year. All in all, TAT Technologies is a strong buy for a long-term holding.

Disclosure: No Positions