We wrote a few weeks back that we believe Lockheed Martin (LMT) will buy Giga-tronics (GIGA) and it is only a matter of time. Shares are getting a nice year end rally up 20% today on decent volume. This puts shares up 26% on the year and keeps this tiny company in play.
In May of this year shares jumped 56% for (GIGA) as the company leaked the story that they had a $3 million order extending ongoing production of its high performance YIG filters from an "unnamed” Aerospace Company, which turned out to be Lockheed Martin (LMT). This gapped shares higher to near three dollars, while volume and volatility exploded , only to fall back into line as sellers took advantage of higher prices to reduce positions. It seems the entire market knew this order was coming, since it was telegraphed to large shareholders as a method aimed at obtaining financing.
Giga-tronics said at the time that it expected to begin shipments for the new orders in September 2015. The orders will be fulfilled by the company's Microsource subsidiary in San Ramon, CA. "We are pleased to have our customer's continued confidence in Giga-tronics to deliver this sole sourced product on time, while meeting their high standards for quality and reliability," President and CEO John Regazzi said back in May.
In December, Giga had a great follow up to the May announcement, when they said that they entered into a strategic software licensing arrangement with Lockheed to develop and license threat simulation software. This also sent shares catapulting higher.
Under the terms of the agreement, Giga-tronics said it will develop and license threat simulation software as a commercial product that brings advanced threat environment simulation capability to its new Advanced Signal Generator Hardware Platform.
"This is a win for the Electronic Warfare community, Lockheed Martin and Giga-tronics," Giga-tronics VP of Marketing Mark Elo stated. "The threat generation software is built by a team that has a strong legacy of program support and brings many new capabilities in a Commercial Off the Shelf solution that is both ready as a turnkey bench solution or a scalable alternative for larger projects."
The software would act as a commercial product that brings advanced threat environment simulation capability to its new Advanced Signal Generator Hardware Platform. This announcement sent shares to retest of the three dollars price target many analysts were targeting for (GIGA) nearing the $25M valuation. If you look at the price action for GIGA, it is clear that much of the selling took place in these telegraphed news events and retail shareholders can take some solace in the fact that shares will likely reduce some of the downside volatility and resume the run rate associated with its licensing deals within the Lockheed relationship.
It is clear to anyone who watches this stock that (GIGA) has a great product and is a likely candidate to be purchased/bought out/taken over at a much higher valuation than the $25M targeted area. This stock looks to be 100% undervalued as we head into 2016, and is high on my watch list as an acquisition candidate. I believe the company could be purchased for $50 to $100 million in 2016.
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