The Electro Optic Systems Hldg Ltd (ASX: EOS) share price has surged higher today after the global defence contractor announced it had secured two new contracts. The Electro Optic share price is up 3.49% at $5.34 at the time of writing.
New contract awards
Electro Optic has won contracts worth $4.25 million from a European NATO country. The company will supply the R400 remote weapon station (RWS) for a European remotely operated combat vehicle (ROCV) program. Both contracts are expected to be delivered by the end of the calendar year.
Electro Optics' RWS are considered the best in the world due to market leading accuracy, reliability and light weight.
With a number of its systems well-suited for ROCVs, the company is participating in ROCV tender opportunities in multiple countries. Current forecasts suggest the sales pipeline could top more than $1 billion.
The global defence contractor is optimistic about possible major contracts within the next 12 months.
Recent updates
Electro Optics has made tailwinds since its poor FY20 results. Just this month, the company released the world's first full-spectrum system for defence attacks against drones. The total addressable market for counter-drone products is estimated to be US$48 billion for the decade ending 2030.
In addition, the company has resumed work on a major overseas contract previously disrupted by COVID-19. The $150 million product delivery and testing is now expected to be completed within six to eight weeks. This will help remedy Electro Optics' cash flow worries.
Is the Electro Optic share price a good investment?
I think that the Electro Optic share price is grossly undervalued. With a market capitalisation of $790 million, the company's current backlog of orders stands at $570 million. This means that products on order represent 72% of Electro Optic's worth.
COVID-19 has presented challenges the company could not have foreseen. However, I believe it is only a matter of time before the Electro Optic share price recovers near its all-time high of $10.80.
The Australian aerospace and defence specialist has grown at an impressive ratein recent years. In 2017, total revenue accounted for $23.1 million compared to 2019's revenue of $165.4 million.
I think the Electro Optic share price is a strong buy today.
