The tech sector is experiencing remarkable growth amid the increasing reliance on digital operations, cloud computing, and big data analytics across diverse industries. Considering this, investors could leverage the favorable market trends by investing in quality tech stocks Leidos Holdings, Inc. (LDOS), Lantronix, Inc. (LTRX), and M-tron Industries, Inc. (MPTI) for December.
But first, let’s delve into the prospects of the tech sector before getting into the fundamentals of the stocks.
The rapid digital transformation has effectively impacted diverse sectors, including but not limited to healthcare, automotive, and real estate. This shift has enriched our lives considerably by providing affordable access to previously unachievable services and birthed a growing demand for advanced technical solutions.
The widespread utilization of high-end technologies, encompassing Artificial Intelligence (AI), Internet of Things (IoT), Augmented and Virtual Reality (AR&VR), 5G, and machine learning, has significantly fueled the tech sector's growth.
The increased popularity of robotics and AI across different industry verticals is expected to drive demand for corresponding hardware components. This surge in demand will likely catapult the global hardware market to $164.21 billion by 2027, growing at a CAGR of 7.9%.
Moreover, the rapid adoption of cloud computing and big data analytics has enhanced the advancement of the IT hardware market. Cloud service providers and enterprises necessitate powerful servers, robust storage systems, and proficient networking equipment for hosting and processing vast amounts of data in real-time.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR Fund’s (XLK) 48.5% returns year-to-date, which outpaced the broader S&P 500’s 18.5% gain.
In light of these encouraging trends, let's look at the fundamentals of the three tech stocks.
Leidos Holdings, Inc. (LDOS)
LDOS provides services and solutions in the defense, intelligence, civil, and health markets in the United States and internationally. It operates through three segments: Defense Solutions; Civil; and Health.
On November 27, LDOS was awarded a new $32 million contract by the Marine Corps System Command through the Consortium Management Group. The defense radar systems development contract called for four Medium Range Air Defense Radar prototype systems within two years. This win would be a significant transition for the LDOS team.
On November 7, LDOS successfully deployed its Exploration Potable Water Dispenser (xPWD) for the International Space Station (ISS). The xPWD is the culmination of nearly three years of design, development, testing, and certification work performed by LDOS as part of NASA's Cargo Mission Contract.
The achievement is designed to enable astronauts to sustain quality water in space while supporting a healthy environment for them to focus on their research. This should bode well for the company.
On October 27, 2023, LDOS’ Board of Directors declared a cash dividend of $0.38 per share, which represents an increase of 6% over the prior quarter’s dividend amount. The dividend will be payable to the stockholders on December 29, 2023.
Its annualized dividend of $1.52 per share translates to a dividend yield of 1.43% on the current share price. Its four-year average yield is 1.45%. LDOS’ dividend payments have grown at CAGRs of 1.9% and 2.4% over the past three and five years, respectively.
LDOS’ trailing-12-month asset turnover ratio of 1.17x is 47.6% higher than the industry average of 0.79x, while its trailing-12-month cash from operations of $980 million is 249.9% higher than the industry average of $280.10 million.
Over the past three and five years, its revenue grew at CAGRs of 8.1% and 8.5%, respectively, while its total assets grew at 1.3% and 7.5% CAGRs over the same periods.
In the fiscal third quarter that ended September 29, 2023, LDOS’ revenues and non-GAAP operating income increased 8.7% and 22.2% year-over-year to $3.92 billion and $418 million, respectively.
For the same quarter, non-GAAP net income attributable to LDOS common stockholders and non-GAAP EPS attributable to LDOS common stockholders stood at $280 million and $2.03, up 27.9% and 27.7% year-over-year, respectively. Moreover, its non-GAAP EBITDA stood at $451 million, up 21.2% from the prior-year quarter.
Street expects LDOS’ revenue and EPS in the fiscal year ending December 2023 to increase 5.9% and 6.8% year-over-year to $15.25 billion and $7.05, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters and consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 32.4% over the past six months to close the last trading session at $106.34. Over the past month, it has gained 17.5%.
LDOS’ POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B for Growth, Momentum, Stability, and Sentiment. It is ranked #8 out of 75 stocks in the Technology – Services industry.
Beyond what is stated above, we’ve also rated LDOS for Value and Quality. Get all LDOS ratings here.
Lantronix, Inc. (LTRX)
LTRX provides solutions for video surveillance, infotainment systems, and intelligent substations infrastructure in the Americas, Europe, the Middle East, Africa, and the Asia Pacific Japan.
On October 25, LTRX expanded its embedded product line to cater to the evolving requirements of the automotive industry. Based on Qualcomm Technologies Inc.’s (QCOM) latest generation of Snapdragon Ride and Cockpit Platforms, including the latest Snapdragon Ride Flex Platform, LTRX’s new Snapdragon Ride SX Automotive Development Platform (ADP) is crafted to accelerate the creation of customizable infotainment, cluster and driver monitoring systems (DMS).
LTRX’s trailing-12-month asset turnover ratio of 0.88x is 41.2% higher than the industry average of 0.62x, while its trailing-12-month levered FCF margin of 10.53% is 29.7% higher than the industry average of 8.12%.
Over the past three and five years, its revenue grew at CAGRs of 27.2% and 22.9%, respectively, while its total assets grew at 30.7% and 27.8% CAGRs over the same periods.
In the fiscal first quarter that ended September 30, 2023, LTRX’s net revenue increased 3.9% year-over-year to $33.03 million, while gross profit increased marginally from the prior year quarter to $14.10 million.
For the same quarter, non-GAAP net income and non-GAAP net income per share stood at $2.46 million and $0.07, respectively. As of September 30, 2023, LTRX’s total current assets stood at $98.91 million, compared to $96.55 million as of June 30, 2023.
Street expects LTRX’s revenue and EPS in the fiscal second quarter ending December 2023 to increase 19.3% and 105% year-over-year to $37.59 million and $0.08, respectively.
The stock has gained 28.4% over the past month to close the last trading session at $5.51. Over the past three months, it has gained 41.3%.
LTRX’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system.
It has an A grade for Growth and Sentiment and a B for Quality. Within the B-rated Technology - Hardware industry, it is ranked #7 out of 37 stocks.
To see LTRX’s additional ratings (Value, Momentum, and Stability), click here.
M-tron Industries, Inc. (MPTI)
MPTI designs, manufactures, and markets frequency and spectrum control products. Its portfolio is divided into two product groupings: Frequency Control and Spectrum Control.
MPTI’s trailing-12-month asset turnover ratio of 1.71x is 176.6% higher than the industry average of 0.62x. Its trailing-12-month ROCE and ROTA of 19.64% and 16.55% are significantly higher than the industry averages of 0.80% and 0.07%, respectively.
In the fiscal third quarter that ended September 30, 2023, MPTI’s revenues and operating income increased 29.4% and 222.7% year-over-year to $10.89 million and $2.03 million, respectively.
For the same quarter, net income and net income per share stood at $1.59 million and $0.57, up 215.3% and 200% year-over-year, respectively. Moreover, its adjusted EBITDA came at $2.34 million, up 166.7% from the prior year quarter.
Street expects MPTI’s revenue and EPS in the fiscal fourth quarter ending December 2023 to increase 29.1% and 345.5% year-over-year to $11.20 million and $0.43, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 171.8% over the past six months to close the last trading session at $35.92. Over the past year, it has gained 267.3%.
It’s no surprise that the stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
MPTI has an A grade for Sentiment and Quality and a B in Growth. It has ranked #5 in the 40-stock-B-rated Technology – Electronics industry.
Click here for MPTI’s additional ratings for Value, Momentum, and Stability.
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LDOS shares were unchanged in premarket trading Wednesday. Year-to-date, LDOS has gained 2.31%, versus a 20.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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