Description

I believe shares of Frequency Electronics, Inc. (FEIM) are poised to appreciate as new leadership moves beyond a period of supply chain headwinds, takes advantage of increasingly cooperative end markets, begins to benefit from past investments in R&D, and perhaps most importantly, begins to culturally shift the mindset of employees in thinking about narrowing the gap between company profitability and the enormous value FEIM’s can’t-get-elsewhere offerings provide customers.  Perhaps I’m naïve in thinking about an investment thesis in these terms, but without FEIM systems, entire swaths of key civilian and military technology would grind to a halt; yet the company sports a $40mm enterprise value.  To be clear, I believe there’s a significant element of past sleepiness to this company that looks to be changing in real time under Tom McClelland’s new leadership, and thus it’s a bit of a jockey bet.

FEIM only trades around 10K shares a day, has zero analyst coverage, has $60mm mkt cap, with 1/3 of its market cap is in cash ($21mm between cash, investments, and cash surrender value of a life insurance policy).  The stock was written up nearly 8 years ago and shares are down 34% since then on a total return basis.  Note FEIM’s FY ends April, thus we’re currently wrapping up FY 2023.

FEIM is a world leader in the design, development, and manufacture of high-precision timing, frequency control and synchronization products for satellite and terrestrial applications that are absolutely mission critical.  There’s not much out there in terms of IR materials, but below are a few slides from a Jan 2021 Needham deck that give the summary as to FEIM’s capabilities, value chain, specific product portfolio, and customer logos: