AstroNova: Outlook Remains Positive

Core Viewpoint - AstroNova's share price has declined nearly 20% from approximately $18 per share, primarily due to year-over-year sales declines across both segments, which are viewed as largely temporal. The current share price of around $14 suggests it is undervalued, presenting an intriguing risk/reward opportunity for investors [2]. Test & Measurement Segment - The Test & Measurement (T&M) segment, primarily consisting of flight deck printers, reported sales of $9.78 million in Q1, down about 5% year-over-year and nearly 25% sequentially. The decline is attributed to order delivery timing and temporary component shortages, which impacted $3 million in potential sales [3][4]. - Adjusting for the component shortages, normalized sales could imply a growth of approximately 24%, indicating stronger demand trends than reported [3]. - Despite a challenging environment, the segment's EBIT margins were 17.6%, down from 20.05% year-over-year, primarily due to fixed cost deleverage from lower sales [4]. - The acquisition of Honeywell has allowed AstroNova to push more ToughWriter printers, which are higher margin products, potentially improving future margins as the company aims to increase ToughWriter sales from 40% to 90% by 2027 [3][4]. Product Identification Segment - The Product Identification (PI) segment reported sales of $23.19 million in Q1, down nearly 7% year-over-year and 13% sequentially, primarily due to delayed shipments from customer specification changes [5]. - The decline in sales is also linked to lower utilization of printers due to previous quality issues with ink suppliers, which may still be affecting sales [5][6]. - Despite the challenges, the segment's EBIT margins improved to 12.9%, up from 10% year-over-year, attributed to operational efficiencies and a favorable mix of higher-margin products [6][7]. Valuation and Future Outlook - The acquisition of MTEX for $19 million is expected to enhance AstroNova's product offerings and sales potential, with projected sales of approximately $9 million this fiscal year [8][9]. - The company is expected to generate $172 million in sales and $32.8 million in segment EBIT by FY27, with a projected free cash flow of around $14.5 million [9][10]. - The current market cap of approximately $111 million suggests that the company is undervalued, with a potential market cap of $196 million by FY27 based on conservative growth estimates [10][11].