Under-The-Radar RF Industries Is A Steal At These Prices

RF Industries Rockets Higher On New Orders 

RF Industries (NASDAQ: RFIL) has been a sleeper play on 5G for some time but that play is waking up. The company just announced a new order from a new client they describe as a “North American Wireless Carrier” whose working on building out its 4G/5G infrastructure. What this means to us is a resounding vote of confidence in the hybrid Optiflex cable line and a high likelihood of follow-on orders and other new clients as well. What this means for RF Industries is revenue growth, margin expansion, and accelerated earnings growth.  

"We are excited to announce this substantial order supporting the next generation infrastructure build for a new North American wireless carrier customer. This is the first time in company history that we have multiple concurrent large customers actively deploying our OptiFlex™ hybrid fiber solution in next-generation wireless builds. Including this order, we have received more than $7.5 million in total orders for hybrid fiber in support of this new customer's North American 4G/5G wireless infrastructure build." said Robert Dawson, President, and CEO.

RF Industries Has Blowout 2nd Quarter 

RF Industries had a blowout 2nd quarter driven by acquisition and organic growth. The company reported $21.51 million in sales for a gain of 94.5% over last year. This revenue beat the Marketbeat.com consensus by 1250 bps and includes a 3050 bps boost from the acquisition of Microloab. According to the company, the Microlab deal has not only allowed for synergies but significant cross and up-sell opportunities that are driving top and bottom-line results. Moving on to the margin, the gross margin improved 400 bps sequentially and 100 bps YOY with additional improvement expected in the back half of the fiscal year. On the bottom line, both the GAAP and adjusted EPS are down sharply from last year but last year’s results include a positive impact from PPP loans. That aside, the adjusted $0.13 is $0.06 better than expected and more than double the previous quarter's earnings. 

Looking forward, RF Industries is well-positioned for the coming few quarters. The company’s Q2 strength and new orders have the backlog up to $34 million or about 1.5 quarters working at the Q2 2022 pace. This should drive revenue in excess of $80 million, according to the company guidance, which is up $5 million from the last report. In our view, revenue guidance is likely cautious given the aggressive rollout of 5G and the high likelihood of new orders. In regard to earnings, the company did not give specific guidance for EPS but says margins are expected to widen and profitability and liquidity will improve. As it is, the company is net cash with no debt. 

The Technical Outlook: RF Industries Confirms An Institutional Bottom 

The institutions have been buying RF Industries like mad over the past year having purchased shares in an amount equal to 17% of the current market cap. This has their holding up to 37% and growing, which is enough to suggest strong support at the $6.00 level. At this level, the company is trading about 12.7X its earnings and is lightly valued in our opinion. Price action is shooting up from this level now and is likely to move higher given the outlook for earnings. Assuming the market can follow through on this move and close above the 30-day moving average, we see shares of RFIL edging higher in the near term and trending higher in the long. There is only one analyst covering the stock right now that matters and their price target is $9.00 or about 45% of upside.