Bear of the Day: TAT Technologies (TATT)

The Zacks Rank indicates that TAT Technologies TATT is a stock that investors may want to take profits in right away.

Trading near an all-time high of $53 a share, TATT has been lifted by positve sentiment for aerospace and defense stocks that was reignited following the U.S military operations in Venezuela.   

However, TAT stock is now trading at fairly stretched levels as a provider of engineered solutions for aircraft, including components and maintenance services for F-16 fighter jets.

With it certainly appearing to be an ideal time to fade the most recent rally, TAT stock lands a Zacks Rank #5 (Strong Sell) and is the Bear of the Day.

A Small Fish in a Big Pond

While the F-16 remains one of the most widely used and versatile aircraft in military service, the hype for TAT’s stock may be well overdone at this point with it being noteworthy that the more lucrative contracts and production of F-16s still go solely through Lockheed Martin LMT.

Furthermore, a surprisingly large ecosystem of companies perform maintenance repair overhaul (MRO), upgrades, and sustainment for the F-16 worldwide, including Amentum Holdings AMTM, AAR Corp AIR, and Top Aces, along with a slew of other private firms.

Revenue Concerns & Weak Earnings Momentum

What sets the overhyped time to sell alarm off is that TAT is not a company that recently launched an IPO, but instead has been public since 1987, and despite higher demand in recent years, is bringing in less than $300 million in annual sales.

TAT most recently missed Q3 sales estimates of $46.26 million in November and came short of the Q3 EPS Consensus of $0.40 as well.  

Following the lackluster Q3 results, EPS revisions have remained lower over the last 60 days, down by 4% and 12% for fiscal 2025 and FY26, respectively. 

Stretched Valuation & Negative Free Cash Flow

The elephant in the room is that many analysts have pointed out that TAT is nearing the overvalued zone. TAT’s 28X forward earnings multiple and forward price to sales ratio of 3X may not appear to be worrisome, but this is a far stretch from where it has traded in the past, and the company has failed to generate positive free cash flow, which weakens intrinsic value.

Conclusion & Final Thoughts 

It wouldn’t be surprising if a sell-off were in store for TAT Technologies' stock or if an extended correction led to the company giving back much of its recent gains.

There is no doubt that TAT has benefited from increased defense spending, but now appears to be an ideal time to take profits with its current stock price starting to reflect speculation and not improving business fundamentals.

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This article originally published on Zacks Investment Research (zacks.com).

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