Undercovered Gems Headline the Singular Research Midwestern Values Conference in Chicago on 9/19

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Undercovered Gems Headline the Singular Research Midwestern Values Conference in Chicago on 9/19

 

At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street. These stocks have a niche business model and have yet to be widely discovered. Many of the global threats in the stock market today do not affect these stocks. Our small-cap investor conference in Chicago has thirteen public, emerging, and undercovered companies that exemplify our research and provide exciting alpha opportunities. Please see below for our conference schedule and a brief description on each company that is presenting.

schedule of presenting companies

 

BIOLASE Inc. (BIOL)

$4 Price Target, Buy-Long Term, Current Price: $0.98 (9/4/19)

Biolase (BIOL) is a world leader in the emerging market for dental lasers. To date, the Company has installed more than 33,000 dental lasers in over 90 countries. Compared to traditional dental instruments, lasers cause less trauma, pain and bleeding and improve patient outcomes. BIOL sells its dental lasers and related products direct in the US, Canada, Germany and India and through distributors in other countries. The Company is headquartered in Irvine, CA.

biolase

 

Emergent BioSolutions Inc. (EBS)

$70 Price Target, Buy-Long Term, Current Price: $56.0 (9/4/19)

Emergent BioSolutions (EBS) is a global specialty life sciences company that develops and commercializes vaccines, drugs and devices that address biodefense threats. The Company is a preferred provider of biodefense products and services to the U.S. government under multi-year contracts. Its most valuable product, BioThrax is the only FDA-approved anthrax vaccine. The Company’s products are sold mainly in the U.S. as well as internationally.

emergent

 

good natured Products (GDNP.V)

N/A Price Target, No Rating, Current Price: $0.15 (9/4/19)

Good Natured Products Inc., formerly Solegear, is an award-winning, publicly traded bioplastics company founded in 2006 and based in Vancouver, British Columbia, Canada. Good Natured is an innovator in the field of next generation bioplastics made from annually renewable plant-based sources.

good nature

 

Luna Innovations Inc. (LUNA)

$6.50 Price Target, Buy, Current Price: $6.39 (9/4/19)

Luna Innovations Inc. develops and markets fiber optic sensing and test and measurement products worldwide. The company has two operating segments. The products and licensing unit sells the company’s commercial fiber optic test and sensing equipment and the technology development segment performs contract R&D for U.S. government agencies.

luna

 

 

Alamo Group Inc. (ALG)

$128.0 Price Target, Buy, Current Price: $112.36 (9/4/19)

Alamo Group is a global leader in design and manufacture of high-quality agriculture equipment for farms and ranches and infrastructure maintenance equipment for government and industrial markets. The company has 26 manufacturing locations in the U.S., Canada, England, France, Australia, and Brazil.

alamo

 

 

Daktronics Inc. (DAKT)

Price Target Under Review, Buy-Long Term, Current Price: $7.15 (9/4/19)

Daktronics, Inc. is the world’s leading supplier of electronic scoreboards, large electronic display systems, and digital messaging solutions for use in sports, transportation, and communications.

drakonics

 

 

Seabridge Gold Inc. (SA)

$17.50 Price Target, Buy-Long Term, Current Price: $16.30 (9/4/19)

Seabridge Gold (SA) is a development stage company engaged in the acquisition and exploration of gold properties located in North America.

seabridge

 

 

QuinStreet Inc. (QNST)

$15.00 Price Target, Buy, Current Price: $11.37 (9/4/19)

QuinStreet Inc. specializes in performance marketing products and technologies. The company serves clients in high-value, high-consideration market verticals, including financial services, IT / technology, home services and education.

quinstreet

 

 

IEC Electronics Corp. (IEC)

$9.50 Price Target, Buy, Current Price: $6.94 (9/4/19)

IEC Electronics is a provider of electronic manufacturing services to advanced technology companies that produce lifesaving and mission critical products in the medical, industrial, aerospace, and defense sectors.

iec

 

 

Harvard Bioscience Inc. (HBIO)

$5.00 Price Target, Buy, Current Price: $2.40 (9/4/19)

Harvard Bioscience (HBIO) develops, manufactures and markets scientific equipment, systems and consumables that are used by thousands of researchers worldwide. The Company was founded in 1901 by a Harvard Medical School professor and has grown through a combination of new products and acquisitions. HBIO is headquartered in Holliston, Massachusetts and has sales and/or manufacturing operations in the US and Canada, the UK, Germany, Sweden France, Spain and China.

harvard

 

Acme United Corp. (ACU)

$23.50 Price Target, Buy, Current Price: $19.66 (9/4/19)

Acme United Corporation is one of the largest worldwide suppliers of innovative cutting devices, measuring instruments and safety products for the school, home, office and industrial markets. The company has facilities in the U.S., Canada, England, Germany, Hong Kong and China. Acme sells its products in countries. It had 421 employees at the end of 2017.

acme

 

 

Genprex Inc. (GNPX)

$5.50 Price Target, Buy, Current Price: $0.90 (9/4/19)

Genprex is a pharmaceutical development company with an innovative anti-tumor platform. Oncoprex is in Phase II clinical trials for the treatment of lung cancer. Additional indications for soft tissue cancers are likely candidates for clinical trials in the future.

genpex

 

 

EVIO Inc. (EVIO)

N/A Price Target, No Rating, Current Price: $0.60 (9/4/19)

EVIO Labs is the nation's leading provider of accredited analytical testing, scientific research and advisory services to the regulated cannabis industry. EVIO Labs provides statemandated ancillary services that are required to ensure the safety and quality of the nation's cannabis supply.

evio

 

To register for the webinar of our Chicago conference on September 19, please follow the link below.

https://register.gotowebinar.com/register/686113248883744525

 

For a complimentary research report on any of these companies mentioned, please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or call 818-222-6234.

Thank you.

 

Singular Research Q2:19 Earnings Season Review

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Singular Research Q2:19 Earnings Season Review

 

The second quarter of 2019 was just as wild as the first quarter with threats of trade war, falling interest rates, and global economic slowdown. At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street. These stocks have a niche business model and have yet to be widely discovered. Many of the global threats in the stock market today do not affect these stocks. Below, we show the individual EPS outcomes for our coverage, then discuss the top and worstperformers for the quarter, and finish with our hidden gem for the third quarter.

 

image 1 9 5 2019

 

Top Five Earnings Surprises

For Q2:19, the top five earnings surprises were Trecora Resources, Luna Innovations, Anika Therapeutics, L.B. Foster, and Roku. Of these five, Luna, Anika, and Roku beat expectations and had resulting extraordinary stock price appreciation. Below we discuss each of the five companies’ Q2 performance:

  • Trecora Resources had a 49% improvement in adjusted EBITDA YoY, resulting from cost cutting improvements and stronger profit margins. The company is on a path of solid operational reliability and cost cutting measures that appears to be working; however, investors have yet to be thrilled.
  • Luna Innovations had total revenues of $17.8 million for the three months ended June 30, 2019, up 80% compared to the three months ended June 30, 2018. Products and licensing revenues were $11.4 million for the three months ended June 30, 2019, up 155% compared to the three months ended June 30, 2018. With strong and growing demand for their fiber optics testing products, Luna Innovations continues to exceed expectations and owners of the stock have been rewarded.
  • Anika Therapuetics’ International Viscosupplement revenue increased 28% year-over-year for the quarter, primarily due to international CINGAL revenue growth of 125%. Anika announced they will be creating a pilot study for CINGAL in the U.S. which will start in early 2020.
  • L.B. Foster had net sales of $200.9 million, an increase of 16.2% over the prior year quarter. Gross profit was $37.1 million, an increase of 12.3% from the prior year quarter. New orders and backlog decreased by 12.4% and 9.5%, respectively, from the prior year quarter. Although L.B. Foster had an earnings surprise of 73%, investors have not been enthusiastic as the stock price has decreased seven percent since their earnings release. We believe this selloff may have provided a good buying opportunity. Singular Research believes L.B. Foster has an upside of 54% as of August 30, 2019.
  • Roku had total net revenue of $250.1 million, up 59% YoY; Platform revenue of $167.7 million, up 86% YoY; Active Accounts of 30.5 million, a net addition of 1.4 million from last quarter; Streaming Hours increased 0.5 billion hours vs. Q1 to 9.4 billion, up 72% YoY; Average Revenue Per User (ARPU) of $21.06 (TTM), up $2.00 vs. Q1 2019. Roku has been on fire for us as the company continues to exceed growth expectations. We initiated coverage on Roku at $40.44 on January 23, 2019.Q2:19 revenues were $37.9 million, up 32% from Q2:18, on account of stabilization in CPM trends, greater-than-expected strength in audio and video, and favorable year-over-year take-rate comparables.

 

Bottom Three Disappointments

At the end of Q2:19, our worst three performers were Salem Media Group, REX American Resources, and the JMP Group. All three of these companies had EPS that did not meet expectations; however, investors have not punished their stock. A description of their quarter results is as follows:

  • Salem Media’s total revenue decreased 2.4% to $64.7 million from $66.3 million; Total operating expenses decreased 9.0% to $59.1 million from $64.9 million; Operating income increased to $5.6 million from $1.3 million; The company’s net loss increased to $3.6 million, or $0.14 net loss per share compared to $2.2 million, or $0.08 net loss per share; EBITDA increased 59.9% to $9.6 million from $6.0 million. The company had $7.8 million of positive cash flow from operating activities. At $1.46 per share (on 8/30/2019), we believe there may be room for huge upside potential. This stock is one of our top contrarian plays.
  • REX’s Q2:19 net sales and revenue were $105.9 million compared with $128.8 million in Q2:18. While ethanol and corn oil pricing remained stable on a year-to-year basis, lower Q2:19 ethanol production and lower distiller grain pricing led to the decline in year-over-year net sales and revenue. Primarily reflecting these factors and higher corn prices, the Company’s Q2:19 gross profit for its ethanol and by-products segment was $6.2 million, compared with $13.7 million in Q2:18. The company is sitting on $212 million of cash that we believe should be enough to help REX weather the storm. Once the trade wars with China subside, REX should have plenty of catalysts to the upside. We believe this stock to be another top contrarian play.
  • The JMP Group had net income of (0.05) per share compared to net income of (0.09) per share in the year ago period. We remain cautiously optimistic that the JMP Group can positively turn performance around in the second half of the year.

 

Singular Research’s Hidden Gem

The Rubicon Project (RUBI), Price Target: $12.00, EPS Beat: 54%, Upside: 17% (as of 8/30/19)

RUBI provides a technology solution to automate the purchase and sale of digital advertising inventory. Sellers (which include websites or mobile apps) provide digital advertising inventory to RUBI’s platform in the form of advertising requests. These ad requests from sellers are sent to buyers, which can then place bids on them. The company co-created Prebid which is an open-source platform that links multiple ad exchanges that were once fragmented. As more and more users adopt RUBI’s Demand Manager (software that simplifies the use of Prebid), RUBI should benefit immensely.

Second quarter highlights:

  • Q2:19 revenues were $37.9 million, up 32% from Q2:18, on account of stabilization in CPM trends, greater-than-expected strength in audio and video, and favorable year-over-year take-rate comparables.
  • Mobile and desktop revenues grew 42% and ~21% YOY to ~$21.2 million and $16.5 million, respectively. These segments represent ~56% and ~44% of overall sales.
  • Adjusted EBITDA was $4.4 million in Q2:19 vs. a loss of ~$5.4 million in Q2:18, driven by higher revenues and lower operating expenses.
  • Net loss was $2.2 million in Q2:19 versus a loss of $13.3 million in Q2:18. Adjusted EPS in Q2:19 was $(0.06) compared to $(0.27) reported in Q2:18.
  • Management now expects sales growth to be well above its long-term guidance of ~20% growth.

 

image 2 9 5 2019

 

For a complimentary research report on any of these companies mentioned, please e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. or call 818-222-6234.

Singular Research Fresh Faces: Top Performers with Hidden Growth Potential as of Q2:19

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Singular Research Fresh Faces: Top Performers with Hidden Growth Potential as of Q2:19

 

The second quarter of 2019 was just as wild as the first quarter with threats of trade war, falling interest rates, and global economic slowdown. At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street. These stocks have a niche business model and have yet to be widely discovered. Many of the global threats in the stock market today do not affect these stocks. In the following paragraphs, we describe our top three stocks for the second quarter of 2019, why they did well, and where we see these stocks going in the near term.

 

The Rubicon Project (RUBI), Price Target: $12.00, EPS Beat: 54%, Upside: 18%

RUBI provides a technology solution to automate the purchase and sale of digital advertising inventory. Sellers (which include websites or mobile apps) provide digital advertising inventory to RUBI’s platform in the form of advertising requests. These ad requests from sellers are sent to buyers, which can then place bids on them.

Second quarter highlights:

  • Q2:19 revenues were $37.9 million, up 32% from Q2:18, on account of stabilization in CPM trends, greater-than-expected strength in audio and video, and favorable year-over-year take-rate comparables.
  • Mobile and desktop revenues grew 42% and ~21% YOY to ~$21.2 million and $16.5 million, respectively. These segments represent ~56% and ~44% of overall sales.
  • Adjusted EBITDA was $4.4 million in Q2:19 vs. a loss of ~$5.4 million in Q2:18, driven by higher revenues and lower operating expenses.
  • Net loss was $2.2 million in Q2:19 versus a loss of $13.3 million in Q2:18. Adjusted EPS in Q2:19 was $(0.06) compared to $(0.27) reported in Q2:18.
  • Management now expects sales growth to be well above its long-term guidance of ~20% growth.

l b foster

 

 

L.B. Foster (FSTR), Price Target: $30.75, EPS Beat: 70%, Upside: 43%

L.B. Foster Co. engages in the manufacture, fabrication, and distribution of products and services for the transportation and energy infrastructure. The company operates through the following segments: Rail Products and Services, Construction Products, and Tubular and Energy Services.

Second quarter highlights:

  • Net income of $9.6 million, or $0.90 per diluted share, an increase of $0.38 per diluted share over the prior year quarter.
  • Net sales of $200.9 million, an increase of 16.2% over the prior year quarter.
  • Gross profit of $37.1 million, an increase of 12.3% from the prior year quarter.
  • Net cash provided by operating activities for the quarter totaled $4.1 million.
  • Net debt decreased by $2.0 million from March 31, 2019 to $79.1 million.

l b foster2

 

Transcat, Inc. (TRNS), Price Target: $27.75, EPS Beat: 21%, Upside: 21%

 Transcat, Inc. (TRNS) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade test, measurement, and control instrumentation to highly regulated industries.

First quarter 2020 highlights:

  • Consolidated revenue grew 15.7% to a first quarter record of $42.4 million, driven by double-digit organic growth.
  • Transcat continued to take market share in regulated markets with Service segment organic revenue growth of 11.9%.
  • Achieved net income of $1.7 million, or $0.23 per diluted share.
  • Acquired calibration automation software company last week to accelerate operational excellence initiatives.

l b foster3

 

For a complimentary research report on any of these companies mentioned, or 14day free trial: https://seekingalpha.com/checkout?service_id=mp_836&sasource=auth_profile_header_ad

 

Thank You

Singular research Staff

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818-222-6234

MMI August 2019

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MMI August 2019

 

A bull or a bear market is just a tweet away

Yields crash and stocks are now a "relative" screaming bargain. 
With interest rates crashing yields on Treasury bonds approaching one and a half percent on 10-year issue and BBB corporate bonds at 3.3 %, the relative attractiveness of equities has increased significantly in the last month. The caveat is we may only be as good as the next tweet or shift in China's currency fixing. With those two overhangs in mind we can start tiptoeing back into the equity Waters.

Sentiment

As volatility increase the vix and vxn indicators spiked above 20 and put to call indicators spiked to 1.15 both bullish oversold levels. Therefore the level of fear has reached a basic minimum to generate a mildly bullish reading.

(VIX spikes on sell off)

(VIX spikes on sell off)

 

Technical indicators.

At best, neutral in late July. The nascent August sell-off flipped all our internal indicators to the bearish side. However, the S&P 500 held above its 200-day moving average while other major market indices most significantly small-cap oriented fell below support into bearish territory.

sp

(S&P500 hold at 200 day moving avg.)

 

Liquidity indicators:
neutral
Earnings season and blackouts have interrupted strong share buyback programs, which will accelerate now that the EPS yield is significantly above borrowing costs for most S&P 500 companies.

While mutual fund and ETF Equity inflows have been negative the big shift and reallocation has been to bond funds to the tune of a net +$10 billion dollars last month. As a cautionary flag, NYSE margin account indicators show a high amount of leverage.  This is more than offset bye overly large cash balances  in mutual funds that exceed $ 3.2 trillion dollars underscoring  high aversions to  Equity Market risk. 

EPS momentum
positive
With Q2 earnings nearly complete the Outlook is favorable better-than-expected reports have dominated at 76% this beats the long-term mean by 6% Q2 revenue growth also has been strong up 4.1% although Q3 revisions are slightly negative at plus 72% versus a 70% long term mean, Q4 estimates return to the positive with earnings expected to be up 4.5% providing a positive backdrop and foundation for a year-end rally.

Valuations.
positive
As bond yields have plummeted over the last month equities have increase the relative attractiveness.

The estimated earnings yield on forward 12 months is nearly 6 percent. This compares very favorably to a triple b corporate bond yield of 3.3%.

On an absolute basis comparing the value of the equity market to overall GDP, the market is at the higher end of the spectrum at 1.4 x GDP slightly below our overvalued neutral level of 1.5.x 

Growth and tech  have outperformed value by a margin not seen since 2000- 01 bubble. Our proxy of the New horizons small cap growth fund trades over 30 times earnings, at a 100% premium to the S&P 599.  Highlighting this divergence, the Russell 2000  equal weighted trades approximately 15 * earning,  micro caps are even cheaper with the Russell microcap index trading 14.3 x.

Monetary indicators 
positive
The well-publicized yield curve has inverted.  However, when we look at the shape of the curve on a 2-year to 10-year basis it does have a positive slope the message here is the Fed will be cutting aggressively. 

Our monetary indicators show a stimulative backdrop for monetary policy just slightly,  at plus .40 bps.

Forward rates in the treasury short term bond market support an further cuts of approximately 40 basis points at this time. This is supported by fed funds futures showing a 63% chance of a September cut in a 62% chance of a January cut.

Misc;
positive
Latest data from the Federal reserve shows that individuals on average , are under invested in equities, currently having less than 37% of total non-financial assets in the equity markets this compares to the recent generational high in the year 2000 of 60%.

In summary, we would look to buy the sell off to get more bullish going into Q4.  Many things favor the upside...  We don't want to fight the Fed, earnings surprise and upward revisions are positive, equities are attractive relative to bonds and cash,  and the massive share Buy-Backs now look like a tour-de-force to keep the bulls on top through year. end

 

yields

 (Yields collapse)

 

BULLISH +60 score out of possible 100 max.

market indicators

 

Thank You

Singular research Staff

Free subscription offer

 

This email address is being protected from spambots. You need JavaScript enabled to view it.

818-222-6234

Summer Solstice Small Cap Investor Conference

 

 June 27, New York City, Westin Grand Central

 

At Singular Research, we focus on small and micro-cap stocks that are undercovered on Wall Street. We look to find the hidden gems that are often overlooked by analysts and portfolio managers. These stocks have had massive returns over our 14-year history and our performance shows it. We have nearly outperformed the Russell 2000 on a two to one basis since our inception in 2005. Please see below some of our top ideas for 2019 that will be presenting at our research conference in New York City on June, 27.

 

Presenting Companies

 

Luna Innovations (LUNA)

 

Luna Innovations Inc. develops and markets fiber optic sensing and test and measurement products worldwide. The company has two operating segments. The products and licensing unit sells the company’s commercial fiber optic test and sensing equipment and the technology development segment performs contract R&D for U.S. government agencies.

 

Q1:19 Highlights

 

  • Q1:19 revenues were $14.8 million, up 69% versus Q1:18, largely attributable to revenue growth in both the Product and Licensing (+98% YOY) and Technology Development segments (+43% YOY).
  • LUNA reported a 79% YOY increase in gross profit to $6.8 million for Q1:19. Gross margin expanded 200 bps YOY to 46% in Q1:19.
  • Adjusted EBITDA improved to $1.0 million for Q1:19, compared to a loss of $(0.1) million for Q1:18.
  • Net income for Q1:19 was $1.0 million or $0.03 per diluted share versus $0.1 million in Q1:18.
  • For the full year of 2019, LUNA expects revenue to be between $60-$65 million, and adjusted EBITDA to be between $6.0-$6.5 million.
  • We marginally adjust our estimates based on the results and management commentary. We maintain our BUY rating and increase our target price to $5.50, with an implied capital appreciation potential of 28%.

 

Emergent BioSolutions (EBS)

 

Emergent BioSolutions (EBS) is a global specialty life sciences company that develops and commercializes vaccines, drugs and devices that address biodefense threats. The Company is a preferred provider of biodefense products and services to the U.S. government under multi-year contracts. Its most valuable product, BioThrax is the only FDA-approved anthrax vaccine. The Company’s products are sold mainly in the U.S. as well as internationally.

 

Q1:19 Highlights

 

  • Product sales rise 102% YOY to $153.0 million due primarily to sales of NARCAN nasal spray and ACAM 2000. Contract manufacturing revenues declined 39% YOY to $15.9 million and contracts and grants revenues increased 36% to $21.7 million.
  • In coordination with the US government, EBS is beginning the transition away from BioThrax to next-generation anthrax vaccine AV7909 (formerly NuThrax). The new vaccine has a shorter dosing regimen than BioThrax and a rapid immune response. Because of this transition, the Company expects FY19 revenues and profits this year to be more heavily weighted towards H219.
  • EBS anticipates a similar ramp-up for smallpox vaccine ACAM2000 as deliveries are completed under its existing contract. Deliveries under a new contract currently being negotiated are anticipated to commence in H219.
  • On the clinical front, EBS posted good interim results from Phase II trials of its chikungunya virus vaccine candidate, which could advance to pivotal trials next year. Patient enrollment for Phase II trials of EBS’ FLU-IGIV therapeutic are wrapping up and trial data from this product candidate could be available later this year.
  • EBS ended Q119 with $137.2 million of cash and equivalents. Long-term debt declined to $732.4 million from $784.5 million at year-end 2018. In October of last year, the Company incurred $768 million of debt and used $119 million of cash to acquire PaxVax and Adapt Pharma.
  • EBS is guiding for 2019 revenues between $1.06-$1.14 billion, net income ranging from $80-$110 million and adjusted net income between $150-$180 million. We update our FY19 sales and adjusted EPS estimates, introduce of 2020 estimates and reiterate our Buy rating and $70 price target.

Alamo Group (ALG)

 

The Alamo Group is a global leader in design and manufacture of high-quality agriculture equipment for farms and ranches and infrastructure maintenance equipment for government and industrial markets. The company has 26 manufacturing locations in the U.S., Canada, England, France, Australia, and Brazil.

 

Q1:19 Highlights

 

  • Q1:19 revenues were $261.9 million, up 10% YOY, attributable to revenue growth in the Industrial (+19.9% YOY) and European divisions (+6.3% YOY). This growth was partially offset by weakness in the Agriculture segment (-9.3% YOY).
  • Q1:19 gross profit increased 5% YOY to $63.3 million. Gross margin was 24.2% for Q1:19, down 90 bps versus 25.3% in Q1:18.
  • Net income for Q1:19 was a record $15.3 million, or $1.30 per diluted share, compared to $14.6 million or $1.24 per diluted share in Q1:18.
  • Even though the stalled agriculture market and lower farm incomes will continue to dampen sales, margins should continue to improve moving forward.
  • Management noted that they are optimistic about 2019 growth prospects. Growing demand in the Industrial Division should continue to drive results in the coming quarters.
  • We marginally adjust our estimates based on the results and management commentary. We maintain our BUY rating and our target price of $126.50, with an implied capital appreciation potential of 31%.

 

Harsco Corporation (HSC)

 

Harsco Corp is a diversified, multinational provider of industrial services and engineered products. The company's operations consist of two reportable segments: Harsco Metals & Minerals and Harsco Rail. The company has locations in 30 countries, including the United States.

 

Q1:19 Highlights

 

  • Q1:19 revenues were $447 million, up 10% from Q1:18, largely attributable to an increase in the Rail (+15% YOY) and Industrial segments (+40% YOY), partially offset by the Metals & Minerals (-1% YOY) segment.
  • HSC delivered non-GAAP operating margin of 9.3%, compared to 9.4% in Q4:18 and 9.0% in Q1:18. Adjusted operating income increased ~14% to ~$42 million.
  • HSC announced a series of transactions (acquisition of Clean Earth and sale of Air-X-Changers) which accelerate its shift to an environmental solutions-focused company comprised of higher-growth businesses with enhanced margin profiles and reduced cyclicality.
  • HSC noted that the backlog trend across segments is positive which should boost revenue in FY19.
  • For FY19, HSC raised its guidance with adjusted operating income at $207-$222 million (earlier $200-$220 million) and adjusted EPS at $1.35-$1.53 (earlier $1.29-$1.47).
  • We marginally adjust our estimates based on the results and management commentary. We maintain our BUY rating and increase our target price to $32.25, with an implied capital appreciation potential of 29%.

 

Daktronics Inc. (DAKT)

 

Daktronics, Inc. is the world’s leading supplier of electronic scoreboards, large electronic display systems, and digital messaging solutions for use in sports, transportation, and communications.

 

Q3:19 Highlights

 

  • Q3:19 revenues were $115.0 million, down 11.7% from Q3:18, as a result of weak performances from Live Events (-33.6% YOY) and International (-34.3% YOY), partially offset by solid gains from Commercial (+4.7% YOY), Transportation (+37.5% YOY) and High School & Recreation (+29.1% YOY). DAKT ended the quarter with a $168 million backlog.
  • Gross margins declined 30 basis points to 21.6% in Q3:19 from 21.9% in Q3:18 due primarily to higher commodity costs.
  • Overall orders rose 7.1% in Q3:19 compared with Q3:18. Orders increased in the Commercial, High School Park and Recreation and Live Events business units and decreased in the Transportation and International business units.
  • Loss per share declined to $(0.07) in Q3:19 from $(0.14) in Q3:18.
  • DAKT is guiding for flat to slightly lower sales in Q4:19 compared with last year. As a result, we expect modest near-term EPS growth.
  • Taking into account recent guidance, we reduce our FY:20 EPS estimate to $0.28, while maintaining our Buy rating and $10 price target. At the recent roughly $8 share price, this implies 12-month capital appreciation potential exceeding 20%.

 

Acme United Inc. (DAKT)

 

Acme United Corporation is one of the largest worldwide suppliers of innovative cutting devices, measuring instruments and safety products for the school, home, office and industrial markets. The company has facilities in the U.S., Canada, England, Germany, Hong Kong and China. Acme sells its products in countries. It had 421 employees at the end of 2017.

 

Q1:19 Highlights

 

  • Q1:19 revenues were $31.4 million, down 1% from Q1:18, on account of initial shipment to a large distributor in Q1:18 that did not repeat in Q1:19. The performance across regions were mixed with US ( down 1% YOY), Europe (up 6% YOY) and Canada (down 9% YOY).
  • ACU is expanding production capacity again at its DMT diamond sharpening plant and plans to launch new Camillus knives offerings in Q3 and Q4:19.
  • Gross Margin for Q1:19 was 37.6%, which was down 60 bps compared to 38.2% in Q1:18.
  • Operating profit improved 12% YOY on account of cost savings initiatives implemented in late 2018.
  • Earnings per share in Q1:19 was $0.24 vs. $0.21 in Q1:18, an increase of ~14% YOY.
  • Management reiterated its sales guidance of ~$140-$143 million, net income of $5.0-$5.3 million and earnings per share of $1.41-$1.50.
  • We introduce our FY:20 earnings estimate of $1.61 per share factoring in the latest management commentary. We maintain our BUY rating and increase our target price to $23.50, with an implied capital appreciation potential of ~18%.

 

 Waseco Resources (WRI.V)

 

Waseco Resources’ current lead project is a highly prospective gold property on the prolific Battle Mountain Trend, in Nevada. The Company has also partnered with Areva to explore a series of highly prospective Uranium properties in the Quebec Labrador Trough. Concurrently, the properties are being explored for gold, copper and diamonds.

 

Management plans to create shareholder value by

 

  • Continuing cost-effective exploration on its prospects
  • Continuing efforts to acquire properties of merit that have the potential to host ore bodies
  • Working with the local communities to ensure both environmentally responsible and sustainable operations
  • Ensuring that all decisions, operations and policies are to the best industry standards and are fully transparent and socially responsible

 

Operating Accomplishments

 

  • Thirty years of exploration without injury
  • Trading as a Tier 2 company on the TSX Venture Exchange
  • Trading on the Frankfurt Stock Exchange
  • $ 2Million of airborne geophysics, ground geochemistry and compilation work completed on the Quebec Labrador Trough Properties since 2005

Comtech Telecommunications (CMTL)

 

Comtech Telecommunications Corp. designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. Comtech sells products to a diverse customer base in the global commercial and government communications markets. Comtech believes it is a leader in most of the market segments that it serves.

 

Q3:19 Highlights

 

  • Net sales for the third quarter of fiscal 2019 were $170.4 million as compared to the $147.9 million achieved during the third quarter of fiscal 2018, representing an increase of $22.5 million, or 15.2%. Net sales for the first nine months of fiscal 2019 were $495.4 million as compared to the $403.2 million achieved during the first nine months of fiscal 2018, representing an increase of $92.2 million, or 22.9%.
  • Bookings during the third quarter of fiscal 2019 were $331.2 million, with a company-wide book-to-bill ratio (a measure defined as bookings divided by net sales) of 1.94 with both its Commercial and Government Solutions Segments achieving book-to-bill ratios in excess of 1.00.
  • Backlog as of April 30, 2019 reflects a record high of $747.1 million.
  • Adjusted EBITDA for the third quarter of fiscal 2019 was $24.0 million. Adjusted EBITDA for the first nine months of fiscal 2019 was $65.2 million as compared to the $47.7 million achieved during the first nine months of fiscal 2018, representing an increase of $17.5 million, or 36.7%.
  • Non-GAAP EPS for the third quarter of fiscal 2019 would have been $0.42 which was 23.5% higher than the Non-GAAP EPS of $0.34 for the third quarter of fiscal 2018. Non-GAAP EPS for the first nine months of fiscal 2019 was $1.05 or 208.8% higher than the Non-GAAP EPS of $0.34 for the first nine months of fiscal 2018.

 

We believe these small cap stocks are mispriced because they are undercovered. They are not well followed in the stock market; therefore, investors do not understand the inner mechanics of the company. Since these companies are small cap, domestic stocks, they have less international exposure and trade war risk than from what most stock market participants perceive. As a result, these stocks have been unfairly sold off and therefore pose great investment opportunities. For more information on these stocks and our investment research, please go to SingularResearch.com where you can sign up for our June offer of a 50% discount on our trial subscription. There, you can also register for our webinar broadcast of these companies that will be presenting on our June 26 investor conference. Thank you for your time in reading this article.

 

Commentary & Strategy by:
Robert Maltbie, CFA
President - Singular Research
LinkedIn

 

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Deal or No Deal?

This is the deal that no one really believes. On one side you have Caesars Entertainment (CZR) combining middle-market and premier properties in Vegas, Caesars and Harrah's getting the lipstick treatment from renowned raider and veteran greenmailer, Carl Icahn with a 28.5% stake , accumulated late 2018 and early 2019 at an average cost of $9 per share, sans big hedge funds , managed by Appaloosa Capital, Soros and Canyon Capital and ABC, Icahn has his management put in place and his directors on the board the goal is to make this company and lean and mean . And I know you have a Mount Everest equivalent 600% debt to equity ratio, a staggering $ 18 billion dollars of long-term debt .

d or nd 1

 

Enter the liquidator, a tough operator with a trained eye on the bottom-line, CEO Tom Reeg, an M&A specialist at El Dorado (ERI). Reeg is high rolling on a string of successful acquisitions cutting out the excesses, extracting every extra iota of EBITDA.
El Dorado management has aspirations of building the next great gaming powerhouse, shooting for an operating income above $1 billion, well positioned to leverage outsized growth potential in sports gaming with significant stakes in agreements with the major infrastructure builders, William Hill (WIMHY ) and The Stars Group (TSG).

 

d or nd 2

 

But how will they ever manage to buy on a company four times their size and digest $18 billion of debt. ? They would need to raise a minimum of $2 billion to finance this gargantuan play, creating a new neo- behemoth in gaming. The combined company would have over a $ 1 billion of operating revenue, over $ 3 billion of ebita and have a combined enterprise value over $32 billion dollars.

Icahn is in at $9. Many think he would want at least $13 to let go. Eldorado is offered $10.50. There is a big spread in the bid- ask in this potential deal. Rumors abound that Icahn may take a lower offer. Management at E Dorado may be creating a war chest for this deal at present, raising nearly $ 4 hundred million by selling non-core properties in the Midwest and in West Virginia last week. Enter the friendly “White Knight”, VICI Properties ( VICI), the major buyer of these El Dorado properties, the entity that just so happened to be the specialty REIT that Caesar’s and Harrah's shuffled their properties over to when they deleveraged in 2017

Eureka ! We have just found our third party facilitator, endowed with low cost financing at 5% cost of capital. Will Icon take $12 to exit gracefully? To accomplish this it may require $600 million to $1.2 billion in fresh capital. At $11, CZR would not be dilutive to ERI . A bump up only slightly to $12 based on ev / sales ratios of the two enterprises could work based on cost efficiencies achieved by Reeg’s cost cutting management style. Still, the market doesn't see it happening therefore the significant discount to the speculated deal price.

 

d or nd 3

 

Many risks exist. What is the possible timing of such a deal? Well, Icahn isn't getting any younger and may finally want to hang it up. This would be a nice way to go out on top. What if the deal doesn't happen? You will own a highly levered company with one of the world's most successful activists, with his management team squeezing out costs to generate improving ebitda, trading at a premium of 10%.to industry comparables.

With a Dow Jones industrial Average that's fairly valued at 3000 a 10 to 20% return should not be underestimated. I am long CZE.

 

Commentary & Strategy by:
Robert Maltbie, CFA
President - Singular Research
LinkedIn

 

Visit https://singularresearch.com for a 50% discount subscription offer throughout June.

Singular Research Director's Letter: June performance 2019

SingularLogo

June 2019 Director’s Letter

 

Major market indices recover from May sell off.

Singular Coverage List continues to lead.

singular list

A dovish Fed signals rate cuts to stimulate stalling economic growth. The Singular Research Coverage list continued to lead the S&P500 & Russell 2000 YTD, although the major indices slightly outperformed bouncing back from the May correction. Although, the small caps and unweighted indices have not kept pace, we will wait to see if this lag becomes a divergence.

top 5 performer for the month

Our top performers in June were led by Geospace Technologies Corp. (GEOS), Management announced strong second quarter results with revenue up 36% YOY driven by OBX rental demand. Our next chart topper was Salem Media Group (SALM). Total revenues declined 5.2% YOY to $60.5 million in q1 19 as a result of drops in Broadcast, Digital Media and Publishing revenues. At a significant discount to book value at $8, SALM looks to have found some fans. Acme United Corp (ACU) gave positive forward guidance after a difficult TTM outlook, Management reiterated its sales guidance for CY 2019 of ~$140-$143 million, net income of $5.0-$5.3 million and earnings per share of $1.41-$1.50.

worst 5 performers for the month

Our worst performers were led by Floor & Décor Holdings Inc(FND), a short call that suffered both from profit taking and covering as the June rally in the overall equity markets gained traction. Harvard Bioscience, Inc. (HBIO) continued to fall in June, GAAP revenues improved 5% in Q119, but organic revenues fell 4% and adjusted EPS declined YOY from $0.03 from $0.02. HBIO expects a challenging H119 and improving results in H219. Daktronics, Inc. (DAKT) reported fourth quarter fiscal 2019 results below our projections.Management guided for slightly higher sales for Q1:20. However, we expect near-term EPS growth to remain muted amid trade tensions. We cut our rating to Buy/Long Term and lower our target price to $6.50.

In June, we initiated coverage on LB Foster (FSTR) LB Foster Co. engages in the manufacture, fabrication, and distribution of products and services for the transportation and energy infrastructure. We caught a nice move up powered by strong Q1:19 results with EBITDA increasing ~92% YOY driving FSTR up 11% and into our top five for June.

At Singular Research we wish to thank our clients and followers for their continued commitment and support of our unbiased, independence research model as we strive to consistently deliver Alpha generated from the lack of coverage out- performance anomaly.

 

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MMI June 2019

Bearish with a Bounce

 

As of press time the market has enjoyed a 2%-3% rally, albeit on lower volume, spurred by a dovish stance by the Fed Chairman Powell, whom is standing by to cut rates if needed, which is seen as a supporting move if there is a global economic slowdown caused by trade skirmishes.

 

Sentiment Indicators: Positive 

 

Several rounds of selling in May has driven most sentiment indicators to an extreme negative reading with the recent two day rally reversing some of the May sell-off.

Volatility indicators VIX and VXN are at elevated levels.

 

mmi image 1

 

The bull to Bear ratio is now positive with bears at 40% bulls at 25%. This is a contrarian indicator, the put to call ratio on the S&P 100 and the CBOE is reflecting an oversold market. Put buying has been elevated.

 

AAII Index

 

  • Bullish 24.8% 24.7% 29.8%
  • Bearish 40.1 36.1 39.3
  • Neutral 35.1 39.2 30.9

Technical Indicators: Negative

 

The 580 point Dow rally has moved some of these indicators into neutral territory. We are waiting until next week to see if we find confirmation of a bullish reversal, a follow-through rally on stronger volume. Before the rally, all major indices were below their 200-day moving average connoting a bearish environment. Tuesday's massive rally took the S&P 500 and NASDAQ, the New York composite and the unweighted S&P 500 above their 200-day moving averages.

 

mmi image 2

 

Liquidity Indicators: Negative

 

Significant withdrawals were spurred by the May sell-off, set off by Trump trade war tweets. Mutual funds and ETFs experienced approximately $20 billion in outflows in May. Adding to this was an increase in issuance in the IPO market, led by Uber (UBER) at $8 billion and Beyond Meat (BYND) at over a $1 billion.

Share buybacks were a feeble $4 billion and M&A was non-existent. The only activity was strategic bolt- on acquisitions of public companies buying private firms.

 

Valuation Indicators: Positive

 

Due to the market sell-off, combined with an earnings season that has been better than expected, the general equity market now has more upside potential over the next 12 months. The earnings yield projected over the next 12 months is approximately 6.5% compared to a BBB corporate bond yield of 4%. Thus, equities look attractive vs fixed income.

The projected for 12 month PE ratio is approximately 16 versus a five-year average of 16.5. However, the overall Market appears slightly overvalued based on our modified version of the Tobin's Q ratio with the current total market cap exceeding 1.5 x GDP. This is below the year 2000 bubble of 2x but above out indicator high mark a fair value at 1.25 times. This elevated figure is palatable due to the current high net profit margins.

Discounting for Equity risk, we derive a market multiplier of 18x times’ earnings, our estimate for fy.2019 is $168 for the S&P 500, an increase of 3% EPS y/y. Thus, we see we see fair value on the S&P 500 at 3024.

 

Monetary Indicators: Negative

 

Our excess liquidity indicator shows virtual parody, with zero stimulation to economic growth at present. The well followed yield curve is negative. The shape of the curve may be instructive with a dip about twelve months out and then a reversion to a normal upward sloped yield curve. The message may be that the trade wars will cause GDP to flatten out or skew slightly negative, to be cured later on in the year evidenced by increasing normalize rates.

 

mmi image 3

 

Miscellany

 

The LEI (Leading Economic Indicators index) is still positive but barely at + .11% month to month. We could be seeing a changing of the guard as the five-year dominance of big cap tech more specifically the “FAANG” as being the one stop trade, maybe in jeopardy. The U.S.Jjustice Department has initiated an antitrust investigation into the aforementioned “FAANG”. At present, it seems to be a unifying topic, politically. These companies have powerful lobbyists and it remains to be seen whether they will face heavy fines, litigation and be broken up. Perception could be more of an impact than reality over the next year or two. We will be watching to see if the broader markets and small caps can start to re-emerge and lead the market as the “FAANG” trade unwinds.

 

Commentary & Strategy by:
Robert Maltbie, CFA
President - Singular Research
LinkedIn

 

Visit https://singularresearch.com for a 50% discount subscription offer throughout June.