What happened
Shares of Rada Electronic Industries (RADA) fell more than 10% on Tuesday following the release of the Israeli defense company's quarterly results. The business fell short of expectations in the quarter and the full-year guidance was underwhelming, leading to the sell-off.
So what
Rada makes radar, avionics, and other electrical components for the defense sector, including the mini-tactical radars that go onto drones and other battle systems. The company's products are used by militaries of more than 30 countries, and counts defense industry giants including Lockheed Martin, L3Harris, and Boeing among its customers.
Image source: Getty Images.
On Tuesday before markets opened, Rada reported a first-quarter loss of $0.01 per share on revenue of $22.5 million, falling well short of the analyst consensus estimate for a $0.12-per-share profit on sales of $30.8 million. The company in a statement said the results were impacted by the United States government functioning under a continuing resolution (CR) instead of a full budget, which constrained spending during the period.
"The peak of the impact of the US CR was in the first quarter and significant US revenues were pushed out to later in the current year," CEO Dov Sella said in the statement. "The ending of the CR and the strong bookings already received in Q1, should provide for a strong recovery in the upcoming quarters, and we expect to maintain our normal margin profile and cash generation for 2022."
Indeed, Rada said it still expects to generate revenue of $140 million in all of 2022. That's just below the $140.18 million analyst average forecast.
Now what
Prior to this quarter, Rada had been a red-hot growth story, generating 15 straight quarters of sequential growth. The company did just $28 million in sales in 2018, and is looking at a 49.5% compound annualized growth rate over the past five years assuming Rada is able to hit its $140 million goal in 2022. And as electronics grow in importance in the defense industry, Rada should see plenty of future demand for its radar systems, with the company estimating a total addressable market of about $6 billion in sales.
Being so small and reliant on a few products left Rada vulnerable in what was a difficult first quarter for defense companies. But there is a lot of opportunity here as well. For investors interested in a higher-risk, higher-potential-reward option in the defense sector, the sell-off in Rada could represent a buying opportunity.
