PRO Weekly Digest: Focusing On Companies Positioned To Benefit From Industry Consolidation

Includes: CRNT, EBS, MHH, TRIP
by: SA PRO+ Editors

We highlight a PRO long idea on Emergent BioSolutions that played out.

Revisiting the bullish thesis on Mastech.

Our idea screen of the week takes a look at companies positioned to benefit from industry consolidation.

Welcome to the latest issue of the PRO Weekly Digest in which we publish highlights from our PRO coverage. Comment below or email us at pro-editors at to let us know what you think. Find past editions here. PRO subscribers can access interviews by following the SA Interviews account and view past interviews under the same account.

Click here to read the interview with William Garrison.

PRO idea playing out

Emergent BioSolutions (NYSE:EBS) is up ~65% since Boris Marjanovic called it an attractive risk/reward biodefense play in May 2017, as it traded at a wide discount to peers despite enjoying a high-profit monopoly on sales of biodefense products and had a number of potential blockbuster products in development. The organic and M&A growth thesis continued to play out as in the past six months it acquired a smallpox vaccine from Sanofi (NYSE:SNY) and an FDA-approved anthrax monoclonal antibody from GSK (NYSE:GSK) and was awarded several contracts with the U.S. and Canadian governments.

Call from the archive - MHH

Although Mastech (NYSEMKT:MHH) is up ~5% since Rational Alpha shared their bullish thesis in September 2017, the stock has pulled back ~25% since the high in November to around the original entry point. However, as the most recent earnings report was largely positive (management said demand for its IT staffing services remained robust and the billable associate base grew for the third consecutive quarter; temporary headwind from hurricanes impacted revenue), and the original price target represents ~100% upside, this may be worth revisiting.

Idea screen of the week

Each week we use the PRO Idea Filter to find potential ideas based on a recent news event. This week, PRO Editor John Leonard, CFA looks at companies positioned to benefit from industry consolidation.

If it’s one place “survival of the fittest” applies, it’s investing, as after a consolidation the remaining companies are often larger, stronger and more profitable. In the interest of translating theory into practice, I ran a screen of PRO long ideas with Industry Consolidation as the Investment Opportunity tag.

2 ideas turned up in this screen that might be of interest (prices as of January 4 close):

TripAdvisor (NASDAQ:TRIP) by Long Hill Road Capital: Published on September 29, 2017, down ~15% since publication, author's price target offers 100%+ upside. TRIP is a highly coveted acquisition target, given its massive 415 million monthly unique user base and the long-term growth of online travel.

Ceragon Networks (NASDAQ:CRNT) by John Zhang: Published on November 21, 2017, up ~20% since publication, author's price target offers an additional ~45% upside. CRNT is emerging as a profitable, lean and technologically superior company with strong growth prospects following a prolonged industry downturn yet trades at a distressed EBITDA multiple.

About the PRO Weekly Digest

PRO members automatically receive the Weekly Digest and other PRO content in their inbox. If you are not a PRO member and would like to be notified of this, click follow at the top of this article to follow the SA PRO Editors account, or click to subscribe to the free newsletter below to receive these in your inbox. You can view all past PRO Weekly Digests here. And if you're interested in SA PRO, check out the details here to sign up or learn more.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Check with individual articles or authors mentioned for their positions.