Valuable Insights
Long/short equity, special situations, value, tech

Digirad: Fat Dividend Limits Risk, Operating Leverage Drives Potential 100% Upside

We believe that in 12 months, Digirad, which closed Thursday at $3.60, will be an $8 stock. The stock has numerous qualities we like in an investment: below the radar screen, significant operating leverage, improving fundamentals, cheap multiples, a cash-rich, debt-free balance sheet, insider/company share purchases, and highly asymmetric risk/reward - in this case, bolstered by a newly instituted dividend (5.55% at current prices). Shares trade at just 9x run-rate EPS, excluding $1.39 of cash per share. There is a compelling margin expansion story, likely near-term accretive acquisitions, and with modest assumptions regarding growth and margin expansion, we believe 2015 EPS will be $0.45 - $0.50 - conceivably far higher. Finally, under the guidance of Chairman Jeff Eberwein, who has...

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