Anxious Comtech shareholders watched that date come and go with nothing more than a stream of small contract announcements. With no word from the company, we were left to speculate as to whether this was just a typical government delay or something more dire.
Finally, word came Thursday night that Comtech has secured a short-term extension to August 31 for $45M, and would be using this period to negotiate and finalize the 3 year extension.
We can only speculate as to the eventual outcome of those negotiations, but the short-term extension has reinforced the importance of Comtech to the MTS. In addition, the government looks prepared to beef up its spending on the MTS; the $45M addition brings the amount left on the current contract to $65M, representing an annual run rate of about $400M.
As expected, the market has responded positively, with shares up over 2% as of Friday. I anticipate even more upside, as shares should get another big pop whenever the final contract extension is announced. I don’t buy the assertion that the full upside of the contract is already baked into the stock price. While I usually agree with the efficient market theory, there are some times it just doesn’t seem to hold.
Take the extreme example of the iPhone. After Apple (NASDAQ:AAPL) had announced the imminent release of the iPhone, its stock soared on any subsequent, although expected, announcement such as the release date.
I don’t mean to assert the Comtech has anything close to the hype of Apple - nothing does. But when Wall Street analysts wake up to see their Bloomberg terminals showing news of a little-followed $1.1B company landing a $600M+ contract, even if it was expected, the money will flow in.
Even though the shares of Comtech have been on a nice run, I am holding my shares in the expectation of further upside.
Disclosure: SmartGuyAB is long CMTL.