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 (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.