Small-Cap CTS Corporation Positioned For Big Business CTS Corporation (NYSE: CTS) is a small-cap tech manufacturer perfectly positioned for long-term growth. The company makes a wide range of sensors, actuators, and connectors for OEM automakers, communications companies,...

CTS Corporation Makes Technology Work

CTS Corporation (NYSE: CTS) is a small-cap tech manufacturer perfectly positioned for long-term growth. The company makes a wide range of sensors, actuators, and connectors for OEM automakers, communications companies, information technology, medical, and even defense applications. The global supply chain crunch, not to mention the soaring demand that is driving it, has the company's products in high demand and growth occurring across all product lines. In our view, the company may not be flashy but it is fundamental to today's technology and the future of the IoT. The IoT still hasn't evolved quite the way it was forecast but that is going to change as 5G becomes more commonplace.

"We delivered strong growth across all end markets despite a challenging macroeconomic environment. Importantly, we also further advanced our diversification strategy, which was underscored by a 25% increase in non-transportation revenues over the previous year, while at the same time winning record new business across end markets," said Kieran O'Sullivan, CEO of CTS Corporation.

CTS Corporation Strong Results Pinched By Headwinds

CTS Corporation had a strong quarter in which we can find only one fault. While the $132.5 million in revenue grew 7.7% versus last year and beat the Marketbeat.com consensus estimate by 760 basis points the strength did not carry through to the bottom line. On a segment basis, sales to OEM automakers rose by 3% while sales to other end markets rose by 25%.

Moving on to the margin, the company's gross margin improved by 270 basis points but restructuring charges and other expenses cut into the operating margin. The operating margin held flat YOY, though, so the news is not as bad as it could be. On the bottom line, the adjusted $0.49 is up from last year, $0.06, and beat the consensus by $0.02 but it could have been better.

The guidance is a little bit better, however, with the company forecasting 2.3% revenue growth at the low end of the range and we see upside risk in the outlook. The company reports a 77% increase in new business wins that we see leading to follow-on and other new orders. This should lead to EPS above the expected $2.00 to $2.25 range and well above the $2.09 consensus estimate.

CTS Is Getting Attention From The Analysts

CTS Corporation has only two current ratings but it is worth noting one of them came out at the end of January 2022 and it is bullish. Sidoti upgraded the stock to Buy from Neutral putting the consensus rating at firm Buy with a price target of $37. That implies about 13% of the upside and we think this market is ready to move higher. The stock trades at only 16X its earnings which is light for a tech company, especially one with secular tailwinds to support its growth trajectory.

The Technical Outlook: CTS Corporation Confirms Support

Shares of CTS Corporation have been range-bound for the last year or so but slowly confirm support at a higher and higher level each time it hits the bottom of the range. The stock's most recent bottom is happening now, in the wake of the Q4 results, and suggest another move to the top of the range is coming. The top of the range is near the $37 consensus price target and may be reached in the next 6 to 8 weeks. If the next earnings report and outlook come in strong, we see this stock at least testing the top of the range if not breaking out to new highs.