Tech Stock to Watch: ESCO Technologies Inc. (NYSE: ESE)

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ESCO Technologies Inc. (NYSE: ESE) stock rose over 11.2% in the last four weeks (Source: Finviz.com). The company in the fourth quarter of FY 20 has reported $7 million rise in net sales in 2020 to $733 million, compared to $726 million in 2019. A&D segment sales grew 9% from 2019, including a $41 million increase in navy and space sales from Globe (full year contribution), Westland, and Vacco, partially offset by lower commercial aerospace sales due to COVID-19.

Test sales had fallen slightly to $187 million in 2020 compared to $188 million in 2019, due to strong chamber project sales, offset by timing delays on certain installation projects due to COVID-19 related customer closure mandates and on-site personnel restrictions at customer locations. USG sales fell by $20 million in 2020 due to deferrals of various project deliverables as utility customers re-aligned their short-term maintenance and spending protocols to focus on uninterrupted power delivery due to COVID-19.

Maintenance deferrals also shows various mandates restricting on-site personnel at substations, large transformers and other customer locations. Q4 2020 sales had fallen only $2 million from Q4 2019 as USG began seeing some recovery in customer spending. The company reported Q4 2020 GAAP EPS was ($0.81) per share (GAAP net loss of $21 million) compared to Q4 2019 GAAP EPS of $0.95 per share (GAAP net earnings of $25 million). The company posted Q4 2020 Adjusted EBITDA of $42 million, compared to Q4 2019 Adjusted EBITDA of $48 million

Moreover, the company signed orders of $799 million in 2020 (book-to-bill of 1.09x), which led to an ending backlog of $517 million at September 30, 2020, representing an increase of 15 percent, from September 30, 2019.

Additionally, the company generated record cash flow in 2020 and paid down the net debt to $10 million resulting in a 0.47 leverage ratio at September 30th. The company generated 2020 net cash provided by operating activities from continuing operations of $109 million, including a $26 million cash payment to fund the pension plan termination completed in Q4 2020. The company has declared quarterly cash dividend of $0.08 per share, which will be paid on January 19, 2021 to stockholders of record on January 4, 2021.

ESE expects the softness in commercial aerospace deliveries to continue for the next few quarters, though the commercial aerospace industry continues to see signs of a recovery. The defense portion of A&D, both military aerospace and navy products, is projected to remain solid for the foreseeable future.

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