Shorted after a nice morning short squeeze, stock has surged 50 cents/share off its lows today, now news the analyst covering the company says the following…I look to cover in the low 3s or even under 3 if this analyst note really gets noticed:
Speculation Surges on IRS Contract Vehicle Award Analyst: Mark Jordan, CFA Valuation: Despite low earnings visibility, we have shifted to an earnings based valuation given the recent order flow for the company’s new KNG and legacy digital radio products. Based on our estimate for 2010 diluted EPS of $0.25, shares trade in the range of 11X to 12X forward earnings, which is in line with large defense contractors. Risks to shares of RELM include: significant long-term growth must be achieved within the State and Local market which the company currently has limited marketing capabilities; technology risk; lack of predictability into the timing and or receipt of larger orders; and aggressive competition from multiple competitors. Recommendation/Action: Hold; while a plus, the contract award alone does not generate any revenue mjordan@nobleresearch.com | (314) 687-1074 ID: 1260300585
Company received a notification that it was included in a large multi- vendor ID/IQ (indefinite delivery/indefinite quantity) contract with a potential 5-year term and $700 million ceiling Contract includes both the Justice Department (DOJ) and multiple other federal agencies; most likely includes major P25 radio manufacturers like Motorola, Harris, and EF Johnson Historically, DOJ’s (which includes the IRS) radio modernization has been performed under the IWN (Integrated Wireless Network) program headed by General Dynamics While most of the DOJ’s P25 radio modernization should be performed under IWN, General Dynamics is not a P25 radio manufacturer
This new award allows the company to market more efficiently to these agencies, although the company could previously sell to them under its existing GSA contract
The contract does not guarantee any sales and we are not changing any estimates for 2009 and 2010