For all the convenience electronic devices bring to our everyday lives, they all share one incontrovertible limitation: Battery Life. Now when it comes to Battery Power, the Average Consumer can go high-end and hope the batteries last as long as advertised, or they can go the cheaper Amazon Basics route and sacrifice performance for plentitude. The Average Consumer has that option. The Enterprise does not.
Enter Ultralife Corp. (ULBI).
Ultralife specializes in producing lithium-ion batteries and power-supplies for a variety of Industries where battery performance, reliability and engineering are Mission Critical.
What sets ULBI apart is their expertise in customizing reliable battery-tech to critical applications where power failure is NOT an option. ULBI’s ability to consistently deliver these essential power solutions has earned them a sterling reputation in the field and garnered strong, long-term relationships with the Government & Defense and Medical Industries.
Ultralife’s business is split into two segments: Battery & Energy Products and Communications Systems.
On April 25, Ultralife posted an impressive Q1 Earnings Beat (above) where Adj EBITDA grew 333% to $5.2M and Gross Margins improved 410bp to 27.4%. The Backlog exiting Q1 was a healthy $97.4M, equaling 60% of TTM Revenue.
In Q1, Battery & Energy Product sales increased 22.9% to $35M and accounted for 83.5% of overall revenue. Communications Systems increased 101.3% to $6.9M, on demand for its EL8000 Server Cases, and accounted for 16.5% of total revenue.
CEO Mike Manna commented:
“Ultralife’s strong first quarter results are a testament to the teamwork and success to date of our Gross Margin improvement initiatives and continued demand in our core products, particularly from our Government/Defense and Medical Customers.”
“With the current healthy backlog and new product commercialization, we are prepared to capture additional organic growth opportunities, while we continue to drive gross margin improvements and invest in further new product development.”
We believe Ultralife is a long-term Top Tier Inflection in the making.
We are particularly impressed with the strong execution the past 3 Quarters, where Earnings Growth surged over 500% on average, along with 25% Sales Growth.
The best long-term Inflection Points always show multiple quarters of strong growth before the BIG inflection in the stock. There are many reasons to believe another strong couple of quarters are forthcoming.
Since taking over as CEO in December of 2022, Mike Manna, has emphasized Margin Expansion and Profitability at Ultralife. It’s noteworthy that Manna is a 30yr veteran of the company and previously headed up the Battery Segment. He knows the company inside-out and has set ULBI on a promising path of growth and profitability with a slew of New Products aimed at New Verticals and New Customers.
With the Global Lithium Ion Battery Market set to grow at an 18.3% CAGR and Military/Defense spending on the uptick thanks to War in Ukraine and tensions in the Middle East, ULBI’s looks very well positioned for growth over the next few years. Please take a look.
At its current valuation, ULBI is very attractive, with a Market Cap of $185M and trading for just 1x Sales. We expect Gross Margins to continue to improve, which will catalyze a further inflection in EPS over the coming quarters.
We believe EPS can grow 40% in FY24 to $0.75 and 30% in FY25 to $1.00/shr. We are looking for 50% over the next 9-12mo and a ~$18PT.
In an Uber Bull Scenario, should ULBI’s earnings enter 2H’25 run-rating at $1.50/shr in annualized earnings, we think the stock would head to $30.
Ultralife’s Backlog declined slightly from $103.5M in Q4’23 to $97.4M in Q1’24. This is something we will keep an eye on but with Global Supply Chains finally steadying, we are not too concerned.
Current estimates show growth slowing from recent levels to 15% next year but assuming Gross Margins expand as we foresee, the flow-thru to EPS will more than offset any slowdown in Revs.
Finally, ULBI stock is thinly-traded, averaging just over 75k shrs/day. Until its Inflection Point occurs, we intend to keep our position small. Keep in mind however, when ULBI ultimately does inflect, the liquidity and share count (16.5M) scarcity should catalyze an impressive move as more Institutions buy into the name. Currently there are only 78 funds invested in ULBI. We expect that to grow as the story unfolds.
We plan to scale into our position on any pullback to the 10day EMA and/or fill out our stake on any high-volume move through $12 current resistance.
As mentioned, we intend to keep our position small due to current liquidity restraints but scale into larger size as ULBI’s Inflection Point ensues.
STOP LOSS: We plan to use a Stop below the rising 50day SMA, currently around $9.24.
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Disclosure: We are long ULBI stock. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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