Applied Signal Technology shares up on 3Q beat

LOS ANGELES

Applied Signal Technology Inc., which makes reconnaissance equipment mostly for the U.S. military, saw its shares rise Wednesday after reporting better-than-expected third-quarter earnings.

THE SPARK: On Tuesday, the company reported earnings of $3.6 million, or 26 cents per share, compared with $3.3 million, or 25 cents per share, in the same quarter last year.

Analysts polled by Thomson Reuters expected a profit of 22 cents per share.

The company also maintained its full-year revenue guidance of $223 million to $233 million with operating income of $18 million to $21 million. Management said it expected to be on the low end of the revenue range but the high end of the operating income range.

THE BIG PICTURE: The company's niche is "making small runs of highly customized equipment," according to Morgan Keegan analyst Brian Ruttenbur, who has a "Market Perform" rating on the shares and a price target of $23.

THE ANALYSIS: Ruttenbur wrote in a research note that the company's ability to expand profit margins going forward is constrained, as is its ability to enact an acquisition strategy given its lightweight balance sheet.

SHARE ACTION: Applied Signal Technology shares rose $1.35, or 6.9 percent, to $20.97 in afternoon trading Wednesday.