What happened
Israeli defense company Rada Electronic Industries (RADA) warned that its second-quarter revenue will come in well below expectations. The stock fell to near its 52-week low as a result, trading down by 15% as of 11:09 a.m. ET Wednesday.
So what
RADA is a defense electronics and radar tech specialist that does significant business with the U.S. government. It is the U.S. part of the business that is suffering, with RADA on Wednesday morning saying it expects to report second-quarter revenue of about $22.5 million, in line with the first quarter but down from $28.3 million a year ago.
That projection was also well below the analysts' consensus estimate of $36 million.
In a statement, RADA blamed political gridlock in Washington, D.C., for the shortfall.
"It is taking longer for RADA to recover from the U.S. Continuing Resolution (CR) pause with orders coming slower than originally planned for and revenues from the U.S. similarly impacted," CEO Dov Sella said.
Now what
RADA is also withdrawing full-year guidance because it expects its pending merger with defense company Leonardo DRS to close before year's end. Terms of that deal call for privately held Leonardo DRS to acquire RADA and list on the NASDAQ; RADA shareholders at the time the deal closes will own about 19.5% of the combined company's equity.
The deal would combine two radar specialists, and give RADA holders access to the scale and diverse revenue streams of the larger Leonardo DRS. In the statement, Sella said there is a lot for investors to like about the deal, and noted that "our combined company will be a leading defense electronics player with capabilities serving a diverse range of high growth budget priorities."
He's right that there is a lot to like about the deal, but RADA's current operations aren't doing much to inspire investor confidence. For long-term-minded investors, there is strong potential in the RADA/Leonardo combination, but in the near term, there's not much to get excited about.
