Ultralife: Limited Downside With Multiple Growth And Value Catalysts
John Leonard, CFA • Wed, Oct. 1
- The stock trades near a 52-week low due to depressed government and defense spending; as a result management now expects a 10% decrease in revenue and operating loss for FY14.
- The short term outlook is more constructive than investors are giving management credit for given the implied forecast for 2H14 profitability despite this top line pressure.
- Management continues to diversify beyond the core military markets with an expansion into faster-growing commercial markets; commercial revenue now accounts for >50% of overall revenue.
- The downside is limited by the high TBV, net cash equal to 30% of the market cap and high FCF; cash flow should improve following an expected inventory reduction.
- The $50 million of domestic NOLs and announcement of a buyback for 10% of the shares outstanding are two overlooked value catalysts.