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Comtech Telecommunications (NASDAQ: CMTL) sells specialized communications equipment such as satellite earth station modems and over-the-horizon microwave systems. Its products and services make possible voice and data communication in areas where terrestrial methods are inefficient or unavailable. Nearly 50% of their sales in 2006 were to the U.S. government, for whom they provide the army’s movement tracking system.

This is exactly the kind of equipment that will become increasingly important as we move to a more high-tech military, where it will be critical to be able to transmit large amounts of data from anywhere at anytime.

Comtech’s growth reflects this trend. Revenue has nearly quadrupled since 2002, and impressively, the bottom line has followed suit (see chart). The stock now a market cap of just under $1 billion, with over one-fifth of that in cash, and sports a P/E under 19.

cmtl gif

The strong fundamentals and growth trajectory are great reasons to own Comtech for the long-term. But I believe that there’s a great short-term story here, too.

Comtech announced third quarter earnings on June 6, and the market didn’t react favorably. Despite beating analyst earnings expectations for the 14th time in 15 quarters ($0.71 actual vs. $0.54 estimated), the stock fell 10%. Revenue was a bit light ($119.4M vs. $121.9M), but apparently it was the drop in new order bookings and backlog (less than the year ago period) that sparked the sell-off. I believe this is deceiving, however, as Comtech looks poised to receive a huge new government deal.

On May 7, the Army issued the following intent to extend Comtech’s contract for its Movement Tracking System. The current contract was for 8 years and $499M expires in July. This new contract, which is expected to be formally announced as early as June 15, is for 3 years and $646M. By my calculations, this would equate to an additional ~160M in annual revenue.

Given its strong track record, balance sheet, and future prospects, the recent dip in Comtech presents an excellent buying opportunity.

Disclosure: Author is long CMTL

CMTL 1-yr chart

CMTL

Source: Comtech Telecommunications: Stellar Track Record, Big Future Prospects