Multi-Color Corp (LABL:BUY) Q1:17 Adjusted EPS of $0.95 beats our estimate of $0.88 on a higher than expected gross margin

Multi-Color Corp (LABL:BUY) Q1:17 Adjusted EPS of $0.95 beats our estimate of $0.88 on a higher than expected gross margin

10-AUG-16 – Multi-Color Corp (LABL:BUY) Q1:17 Adjusted EPS of $0.95 beats our estimate of $0.88 on a higher than expected gross margin, partly offset by a higher than expected SG&A. We maintain our FY:17 EPS estimate, our price target of $67.00, and rating at BUY-Long Term pending review of the 10-Q.

Q1:17 HIGHLIGHTS

  • Total revenues grew 8.5% driven by $18.6 million of revenue from acquisitions not yet annualized. Internal growth was +4% totally offset by foregone low margin beer label sales (2%) and F(x) of (2%).
  • Gross margin was up to 22.0% vs. 21.5% due to contribution from acquisitions as gross margin on revenue from acquisitions was 24.2%.
  • Adjusted operating margin was down, 12.5% vs. 13.0% in the prior year, due to increased compliance costs.
  • Q1:17 GAAP EPS was up to $0.93 vs. $0.79. Adjusted EPS was up 4% to $0.95 vs. $0.91, well ahead of our estimate of $0.88.
  • Simply adding the earnings beat to our prior FY:17 estimate of $3.47 would produce a new estimate of $3.55; however we will wait to update our estimate and price target of $67.00 and rating of Buy-LT until after reviewing the 10-Q.

RISKS

  • The company has completed a series of acquisitions funded by debt in the last few years. A significant shortfall in sales and earnings could endanger its ability to stay within debt covenants.
  • High customer concentration in top customer (Proctor and Gamble – 17% of sales) and top 25 customers (49% of sales).

Gray Television Network (GTN:BUY) Record-setting results in net income and cash flow for 2Q16.

Gray Television Network (GTN:BUY) Record-setting results in net income and cash flow for 2Q16.

10-AUG-16 – Gray Television Network (GTN:BUY) Record-setting results in net income and cash flow for 2Q16. Adjusting for the impact of acquisitions, Gray continues to post organic revenue growth while maintaining solid expense controls. Maintain BUY rating and $22 price target.

Q2:16 HIGHLIGHTS

  • Total revenue for the three months ended June 30, 2016 was $196.6, the highest for any quarter in GTN’s history and a 37% increase from the second quarter of 2015. The record-setting performance resulted in basic net income per share of $0.25. On a Combined Historical Basis, to reflect organic growth by adjusting for the effects of acquisitions, revenue increased 8%.
  • A result of prudent cost controls, broadcast operating expenses, on a Combined Historical Basis, were unchanged in the second quarter of 2016, when compared to the second quarter of 2015.
  • Net income was $17.7 million for the second quarter of 2016, the highest for any second quarter in GTN’s history and a 46% increase from the second quarter of 2015. On a Combined Historical Basis, net income increased 6%.
  • Reported results in total revenue, political revenue and corporate expenses met management’s 2Q16 guidance above the midpoint at each range and broadcast expenses finished about $4 million below the low end of management guidance.
  • The Summer Olympic Games and the Presidential elections in 2016 will continue to have positive influence on revenues. GTN is able to capture a large part of local ad spending and political advertising dollars in their respective markets. Senate and House seats will be in contention and GTN has a well positioned portfolio of market leading stations in almost every one of the significant battleground states.
  • We forecast EPS of $1.34 in 2016. We continue to maintain a BUY rating and a price target of $22.00.

IRIDEX (IRIX:BUY) Robust sales of proprietary new ophthalmic laser, amplified by high recurring sales of disposable laser probes, fueled 32% sales growth

IRIDEX (IRIX:BUY) Robust sales of proprietary new ophthalmic laser, amplified by high recurring sales of disposable laser probes, fueled 32% sales growth

12-AUG-16 – IRIDEX (IRIX:BUY) Robust sales of proprietary new ophthalmic laser, amplified by high recurring sales of disposable laser probes, fueled 32% sales growth in Q2:16. Investments in sales force and operating capacity in H2 will restrict profit growth. However, we expect sales of high-margin consumables across an expanding installed base to drive margin expansion and accelerate EPS growth in FY:17. We reiterate our BUY rating and increase our price target from $13 to $16.

Q2:16 Highlights

  • IRIX sold 72 Cyclo G6 lasers in Q1 and 124 systems in Q2. Based on this sales momentum, the Company will easily exceed its target of 200 units delivered in 2016 and an installed base of 300 units by year-end.
  • The Cyclo G6 system is based on a razor/razor blade model, with each installed laser consuming 10-12 disposable probes per month. IRIX sold 5,000 MP3 probes in Q1 and 8,000 MP3 probes in Q2. Probes, which have attractive 80% gross margins, will drive profit growth.
  • 67 units were sold internationally in Q2 versus 22 in Q1. Some of these international sales were stocking by distributors. IRIX targets an installed base of at least 100 systems outside the U.S. by year-end 2016.
  • IRIX will add six sales reps and expand production capacity over the next several months to ramp sales growth. We have modeled rising expenses and adjusted our EPS estimates accordingly.
  • IRIX has no long-term debt and $11.9 million of cash. During Q1:16, approximately 7,000 shares were repurchased.
  • We reiterate our BUY rating and raise our price target from $13 to $16.

Primary Risks

  • IRIX’s sales to overseas distributors are denominated in U.S. dollars so currency effects are minimal. However, increases in the value of the dollar make IRIX products more expensive for foreign customers, which may result in lower sales/profits.

Singular Research Director’s Letter July 2016: Brexit Vote Drives Volatility

Singular Research Director’s Letter: July 2016

Brexit Vote Drives Volatility

The changing perception over the Brexit vote drove volatility in the small cap indexes: the Russel 2000   initially increased 3% in the first week of June, then declined 8% and finally rebounded 6% from the monthly lows. Without clear trends, equity markets have been victim to changing perceptions. We anticipate more volatility in the coming months due to extrapolative interpretations of the Brexit vote, and uncertainty over the US presidential election. And volatility can create opportunities, which we perceive in EBS and GASS now. The bar for earnings overall is low for the upcoming earnings reporting season. Low fuel prices and the expanding labor force will continue to support US growth and we do anticipate further Fed tightening this year.

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For the companies on the Singular Research coverage list, Harte-Hanks (HHS) was the strongest performer in June. The company rebounded from oversold conditions after a weaker than expected first quarter. Our analyst has lowered expectations but still highlights strong appreciation potential in the next year. SA has benefited from the increased interest in gold, and the company has been increasing its known gold reserves after drilling programs during the past year. ANIK is a market leader in visco-supplementation for osteoarthritis patients. Our analyst expects Monovisc will continue to take market share, and new products in the coming years will support additional growth. HAYN is rebounding from deep oversold conditions in May. CTRP is overly-loved by Wall Street, even as the company continues to avoid directly answering most analyst’s questions on the quarterly conference calls. The company has a ridiculously high valuation, has lowered expectations, and has huge integration issues with recent acquisitions.

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Most of the stocks in the worst performing group of the Singular coverage list during June are creating good buying opportunities. Some have had weak quarterly reports but others have not and represent significant opportunities. EBS has good fundamental performance but a recent Biothrax order was less than some had expected. Our analyst believes the stock price reaction is overdone.  GASS is another company that is oversold. The company is a leader in the LNG delivery market in Asia. We have dropped coverage of REED. GTN had strong revenue growth in Q1 and is positioned to benefit from the increasing advertising this year due to the Olympics and the presidential election. CPS reported a strong Q1 above expectations but the stock declined after the Brexit vote.

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At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We are tracking several names that we anticipate to launch coverage. We thank our clients for your support of independent equity research.

Singular Research Director’s Letter May 2016: Small Caps Improve But Still Receive Little Respect

Singular Research Director’s Letter: May 2016

Small Caps Improve But Still Receive Little Respect

Small cap indexes outpaced the broader market in April but still trail on a YTD basis. There has been a stealth bear market within the small cap arena with the average performance of all stocks with a market cap of under $1 billion in the US down 32.3% in the LTM period. This clearly defines a bear market, yet the Russell 2000 is only down 5.6% in the same time period.

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China weakness still spooks the equity market, but domestically, US employment and housing are the economic driving factors.  Concerns remain over when the next Fed interest rate hike will occur.

For the companies on the Singular Research coverage list, Salem Communications (SALM) was the strongest performer. The company operates radio, print and internet media properties that address conservative markets. The presidential election year tends to increase ad sales, the company has committed to reducing leverage, and the stock was far oversold in early 2016. Both SA and TREC have rebounded from early 2016 lows that brought many stocks in the industrial sector well below fair valuation. TREC had a strong contribution from its mine ownership, and SA announced higher reserves after additional drilling. VDSI margins improved in Q1, and IRIX increased its guidance.

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In our worst performing list for April, three companies had weaker than expected Q1 reports, while two are fundamentally strong and the price weakness creates immediate opportunities. Topping our worst performers were LAKE and HHS, both of which had company specific negative news. LAKE is impacted by weakness in energy, and HHS decided to discontinue its dividend in its restructuring process, which is anticipated to be complete in 2016. AVID also missed our estimate. STMP is well positioned, and we believe the stock weakness offers a great buying opportunity.  FLXS is beating our expectations.

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At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We are tracking several names that we anticipate to launch coverage. Singular Research is sponsoring its first conference in San Francisco on June 9 with many interesting companies presenting. We invite those interested in under-covered small cap companies to attend. We thank our clients for your support of independent equity research.

Supreme Industries Inc. (STS:BUY) Robust demand for trucks coupled with superior execution capabilities is driving strong growth in revenues

Supreme Industries Inc. (STS:BUY) Robust demand for trucks coupled with superior execution capabilities is driving strong growth in revenues

12-AUG-16 – Supreme Industries Inc. (STS:BUY) Robust demand for trucks coupled with superior execution capabilities is driving strong growth in revenues, which in turn is aiding Supreme to enhance gross margins through improved plant utilization. Going forward, we believe Supreme is well positioned to capture growth opportunities through its various strategic initiatives including sales team expansion, focus on leasing, lean manufacturing, and new product innovations. We initiate coverage with a BUY rating and a $20.00 price target.

Investment Thesis

  • Supreme Industries is one of the largest truck body manufacturers in the U.S., producing 20,000 units annually from eight manufacturing and component facilities strategically located to serve major geographic
    markets.
  • Completion of a restructuring exercise over 2011-13 that included lean manufacturing practices, refinancing debt and divesting non-core business, coupled with robust truck demand has helped Supreme to
    report a strong financial turnaround both in terms of revenue growth and margin improvement over the past couple of years.
  • We believe Supreme is well positioned to capture growth opportunities in 2016 and beyond, and outpace overall industry growth through various strategic initiatives including sales team expansion, focus on
    leasing, continued deployment of lean manufacturing techniques, and development of new products.
  • We initiate coverage with a BUY rating and $20.00 price target.

RISKS

  • A number of smaller, regional players could create significant product pricing pressures and adversely impact the company’s financial performance.

Small Cap Stocks Rebound

Small Cap Stocks Rebound

After a strong finish to 2010, the small cap arena has rebounded from a weak start in 2011.  With the high US unemployment rate, we continue to view the employment picture as a good gauge for US economic health.  Although widely perceived as a lagging indicator, we expect the equity market to respond favorably to positive employment reports due to the slow recovery in this metric.  As mentioned previously, we believe the biggest positive surprise for the equity markets this year is likely to be the magnitude of improvement in employment.  The February employment report was a case in point, which also brought positive revisions for previous months.  We expeact the employment news in 2011 to be the most positive in years.

The latest factory orders, reported for January, were much stronger than consensus economic expectations and included a positive revision for December.  Although aircraft was a major contributor in January, non-durable goods ordered increased 3.1%.  Our take-away – strong factory orders will lead to improving employment and consumer spending in 2011.

Turmoil in the Middle East has driven oil prices higher, but the lack of significant corrective pressures in equity markets through early March tells us this bull market has strong footings.  Regime change in the Middle East can be destabilizing and the short term progression and eventual impact of political change in the Mid-East is difficult to predict.  If the political strife in the Middle East calms down, and does not escalate in the primary oil supplying countries, we could see oil prices fall back from the recent spike.

The S&P 500 was up 3.2% in February, the Russell 2000 was up 5.3% and the aggregate Singular List was up 4.7%.  The Long-Only Singular List was up 4.8% in January.  On a YTD basis, the S&P500 was up 5.5%, the Russell 2000 was up 5% and the aggregate Singular List was up 3.6%.  The Long Only Singular List was also up 3.6% on a YTD basis.

Updates to the Singular List in February include dropping six names (China-Biotics – CHBT, Famous Dave’s – DAVE, SmartHeat – HEAT, ShengdaTech – SDTH, Fushi Copperweld – FSIN, Protalix BioTherapeutics – PLX).

We dropped coverage of China-Biotics (CHBT) due a second consecutive quarterly earnings miss.  Famous Dave’s (DAVE) met our updated price target and had performed well, with an approximate double during our coverage.  We dropped coverage on three Chinese stocks (HEAT, SDTH, FSIN) due to our perception of the negative impact of slower Chinese economic growth, and a rising Yuan.  A lack of visibility into future fundamentals lowered our confidence in these companies.  Protalix BioTherapeutics (PLX) was dropped due to questions raised by the FDA about a promising drug for Gaucher disease.  The delay in FDA approval casts doubt on the future performance of PLX.

Our top performers in February were an interesting mix of cyclical and consistent growth companies along with a precious metal play.  Our top performer in February was Synovus, up 31.7%. The company reported its Q1:11 revenues and earnings above our analysts’ expectations, driven by strength in several product lines.  Our analyst raised the price target and EPS estimate.  Key Technology was up 22.0% in February.  The company reported Q1:11 results that were better than expected.  Our analyst expects relatively flat Q2 results and a much stronger 2H:11.  Hurco was up 18.5% in February.  The company reported its Q1:11 in early March that was far better than expected.  The cyclical turnaround has taken hold with strong revenues and expanding margins.  Seabridge Gold was up 18.4% in February.  Our analyst indicates the stock was exceptionally undervalued with more reserves per share than comparable companies, and a new PFS in April 2011 is likely to increase gold reserves.  Ebix was up 16.8% in February.  The company has yet to report its Q4 results, but it has a history of consistent growth.

Our worst performers in February included two pharmaceutical companies.  Nymox Pharmaceutical was down 10.9%. The company’s stock performed well in the last two months since the December announcement of a pharmaceutical distribution agreement for NX-1207, an innovative treatment for enlarged prostate.  Vanda Pharmaceutical was down 8.1%.  The company has performed well in recent months.  DDI Corp. declined 7.9%. Earnings estimates were reduced for 2011, but using normalized earnings which are lower than GAAP earnings, our analyst still perceives significant upside.  The company will benefit from manufacturing consolidation, and increased the dividend 67%.  ChinaBiotics was down 4.3%.  We dropped coverage due to the second consecutive quarter of earnings misses.  Standard Motor Products declined 3.9%. The company reported significantly better than expected revenues and earnings in early March.

We continue to find attractive investment opportunities in the small cap space.  As evidenced by our ongoing EV/EBITDA studies, approximately 75% of all companies with low EV/EBITDA ratios have a market capitalization under $1 billion.  Our analysts are completing work on several new names for coverage and plan to launch in March.  We remain confident in our ability to find value added investment ideas and are grateful for the continuing support of our subscribers.
Sincerely,

Greg Garner, CFA
Senior Equity Analyst

Singular Research Director’s Letter January 2016: Markets Stumble to the Finish Line

Singular Research Director’s Letter : January 2016

Markets Stumble to the Finish Line

From a macro perspective, the only significant change from last month was the 25 basis-point interest rate increase by the FED. This move has long been telegraphed and certainly should not have caught anyone by surprise. Removing that from consideration as a cause, the market weakness seen in December may simply be more reflective of generally reduced expectations for corporate profits heading into 2016. Time will tell.

As the calendar turned, oil prices continued to slide while Chinese markets dropped precipitously. Both of these factors appear to be reflective of tepid expectations for economic growth. From an investment perspective, all is not lost though as opportunities continue to exist with respect to “things that go up” – particularly precious metals like gold. Our Singular coverage list counts several companies with exposure to precious metals – AMKR, SA, and LODE. With our wide mandate to find quality, underfollowed companies no matter the industry, we offer our clients continued opportunity to generate alpha.

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Recapping the table above, for December, the S&P 500 was down 1.64%, the Russell 2000 was down 3.70% and the aggregate Singular List was down 2.65%. For the trailing twelve months, the S&P was down 0.66%, the Russell 2000 was down 2.80%, and the Singular Research List was down 2.39%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was Century Casinos (CNTY). While there was no news from the company during the month, we did see the company/stock discussed positively in several online forums, reinforcing our positive view on the company.

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Our worst performers in December saw their monthly returns driven by various factors although weak petrochem-related prices were the primary cause for the weakness seen with our two worst performers. Both TREC and REX sell products which have high pricing correlation with oil prices. Given the commodity weakness, it was therefore not surprising to see these two decline.

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At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.

Sincerely,
Singular Research