Small-Cap Anaren a Long-Term Buy

We maintain our Buy recommendation and the same valuation target for Anaren, Inc. (ANEN - Snapshot Report), a leading provider of microwave components and subassemblies for the wireless and defense industries, following mixed financial results for third quarter (ended March 31) fiscal 2008. Although revenue was above our estimates, net income declined due to cost overrun as a result of supply-chain challenges and several production related issues.

An anticipated sales decline of Anaren's high-margin IED products, together with recent recessionary trends in the global economy, may generate some sales volatility over the near-term. However, consistent bookings and strong order backlog is expected to benefit the company starting in fiscal 2009. Anaren has a strong financial position and it diversified operations into multiple vertical markets (i.e., wireless, space, video broadcast, defense and medical) that spread sector specific risk during turbulent market conditions.

We continue to evaluate Anaren as an attractive investment opportunity from a longer time horizon perspective. The company s shares are currently trading at 17.8x estimated forward earnings for fiscal 2009. This is at a premium to the S&P 500 average, but at a significant discount to the industry group. However, with respect to other selected valuation metrics, including P/S and EV/S, the stock is trading above its peer group average. Considering the strength and future prospects in the Space & Defense segment and in wireless infrastructure segment, our opinion is that the current valuation of Anaren does not reflect its true growth potential.

Read the full analyst report on ANEN.

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