Initiating with an Outperform Rating on LGL Group
LGL Group (LGL), through its subsidiaries manufactures custom-designed highly engineered electronic components. Beyond its blue-chip customer base, the firm has significant opportunity for growth in specialty products in the military instrumentation and space avionics market (MISA) as well as high growth emerging areas such as India and China.
Further, the firm’s long-term goals include plans to diversify away from strictly selling components and to be included higher in the value chain through strategic partnerships. We feel the stock will outperform the overall market and have set a six-month price target of $15.00.
LGL trades at a reasonable valuation of 19.5x our 2010 estimated earnings per share. We feel LGL presents a unique investment opportunity based on the fact that LGL has a solid blue-chip customer portfolio, a high-growth potential segment in MISA, and a strategic plan for higher margins (value chain). The firm emerged from the economic downturn with a significantly lowered cost structure and should continue to ride the momentum of Military Instrumentation, Space and Avionics segment or MISA. The MISA segment should lead the global economy out of the recession and will do so with higher margins.
LGL competes in the specialized and higher margin component segment area of the frequency/timing components market. This has the effect of higher margins and stickier revenue, which is less likely to be cancelled or sourced elsewhere.
Read the full analyst report on “LGL”
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