AstroNova: A Lot To Like

Core Viewpoint - AstroNova is positioned as a compelling investment opportunity with potential for growth in earnings and free cash flow over the next 24-48 months, despite recent sales pressures in its Product Identification segment [2] Product Identification Segment - Product Identification (PI) sales decreased by 5% in Q4 to $26.6 million, influenced by macroeconomic factors and specific issues such as a faulty ink supplier affecting printer sales [3][4] - The company anticipates a recovery in sales as repair issues are resolved and normalized supply volumes are expected to increase in FY25 [4] - Competitive risks exist, particularly from commercial printer vendors, but AstroNova has maintained market share through continuous product improvements [4][5] Test & Measurement Segment - Test & Measurement (T&M) sales increased by approximately 11% to $13 million in Q4, benefiting from improved airplane production orders [5] - Long-term demand for T&M products is expected to grow due to a backlog in aircraft deliveries, despite potential near-term risks associated with Boeing's production issues [5][6] - The segment is projected to maintain healthy margins, with EBIT margins around 24% based on current sales levels [6][9] Margins and Cost Structure - PI segment EBIT margins improved to approximately 12% from 7% year-over-year, attributed to a reduced cost base despite lower sales volumes [6] - T&M segment EBIT margins were around 28%, with price increases contributing to margin growth [6][7] - Future margin improvements are expected as restructuring costs decrease and the mix of higher-margin products increases [6][7] Valuation - AstroNova's current market cap is approximately $133 million, with an enterprise value of around $150 million after accounting for cash and debt [8] - The company is valued at a 12x free cash flow multiple, which is considered reasonable given the stable demand for its products [9] - Projected growth in T&M sales and margin improvements could lead to a market cap of approximately $220 million by FY28, representing an attractive investment opportunity [9][10] Conclusion - AstroNova presents a favorable risk/reward profile with internal growth opportunities and expected market growth, although risks related to Boeing's production issues and potential operational challenges remain [10]