Investing

Astronics Spikes 42% on Friday After Key Debt Refinance Significantly De-Risked the Stock

Ben Ward

Published: January 23, 2023 3:00 am

Last Updated: January 23, 2023 1:03 pm

American aerospace and electronics corporation Atronics (US:ATRO) spiked 41.8% higher on Friday, pushing the stock back to levels not seen since mid-2021. The rally was induced by a bullish preliminary fourth quarter trading update which included a key debt restructure that was a main point of concern for investors.

In the update, Astronics Chairman and CEO Peter Gundermann told investors that the company “continued to see strong order flow in the fourth quarter, as we have since the middle of 2021”

Astronics now expects to report sales of $155 to $160 million for the final quarter of 2022, upgrading expectations from the previously guided range of $140 to $150 million. The new guidance represents an 8.6% upgrade to the previous outlook and a 20% sales increase when compared to the previous third quarter.

The firm also told investors that preliminary bookings for Q4 will be in the range of $175 to $180 million with a record ending backlog balance.

Gundermann highlighted that a key factor to the upgrade was the “beginning of the sales ramp required to satisfy high demand as our supply chain continues to show improvement”.

For 2023, Astronics maintained its revenue expectations to generate $640 to $680 million in sales as they expect the growth to continue.

Growth in 2023 will be likely aided by China’s reopening which will ease supply chain constraints and increase aircraft travel demand, providing some sector tailwinds.

The key focus of the update however was the long-awaited debt refinancing package that pushed out the pressing November 2023 maturity deadline.

The package once completed will provide liquidity of $35 million after refinancing $205 million of debt in two tranches.

The first tranche is a $115 million asset-backed revolving credit facility that has a maturity date in January 2026 and is mainly collateralized by inventory and accounts receivable.

The second tranche of the package is a $90 million term loan which has a maturity date in January 2027 and is backed mainly by real estate assets, fixed assets and Astronics IP.

With the refinance now completed, Astronics highlighted that the company expects to be cash flow positive for 2023.

The latest news removed a significant overhang of liquidity and solvency concerns for the stock and caused investors to come rushing back. ATRO’s share price rose consistently  throughout Friday’s trading session and continued its rise in after-hours trading, adding a further +1.23% of gains.

Research on the Fintel platform’s forecast page for ATRO highlighted that analysts are expecting a v-shaped recovery for the group’s sales in the coming years, although at a slower pace than the sales decline.

The street is also bullish on ATRO’s future ability to scale up underlying business profitability as demand returns. Analysts foresee a strong uptick in company profits from 2025 and beyond.

The platform also highlighted some unusual options activity which occurred as a result of the company announcement.

A significant amount of put and call option volume was traded on Friday with the increased trade volume. There was a larger volume of put volume that traded in the market as holders likely looked to hedge the significant gains made over the day.

ATRO will next update investors during the release of fourth quarter and full year results at the beginning of March. The street will be looking for any additional outlook commentary to be provided on the sales momentum over the first quarter of 2023.

This article originally appeared on Fintel