Gems In The Rubble - Top Picks For 2019

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Includes: CTRL, EBS, HSC, KLIC, NVEE
by: Singular Research
Summary

Our top picks for 2019 include EBS, NVEE, HSC, CTRL, and KLIC.

Average upside for our picks are 53%.

Our average EPS 1-year growth estimate is 15%.

Top Picks for 2019

Symbol Current Price P/E (LTM) EPS 1 yr growth est. Price Target Upside (%)
(EBS) $63.43 30 35% $70 19%
(NVEE) $65.54 22 18% $100 61%
(HSC) $21.49 16 12% $33 63%
(CTRL) $19.42 26 7% $30 64%
(KLIC) $21.48 9 3% $31 56%

Emergent BioSolutions (EBS)

Chart EBS data by YCharts

Q3:18 revenues rise 16% YOY. Transaction costs for PaxVax and Adapt Pharma cause cut in guidance for FY:18 EPS, but these accretive deals push FY:19 revenues above $1 billion. We reduce rating to Buy/Long Term and raise our EBS price target from $60 to $70.

Company Description

Emergent BioSolutions 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.

52-Week Range

Shares Outstanding

$42.67 - $73.89

50.95M

Total Debt (million)

Debt / Equity

$13.49M

1.40

Insider / Institutional 14.83% / 84.36% ROE (LTM) 12.28%
Public Float 43.35M Book Value / Share $19.26
Market Capitalization 3.23B Daily Volume (3 mo. Avg.) 404.86k
FYE DEC FY 2017 FY 2018 FY 2019
EPS ($)* ACUTAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $0.29A $(0.03)A $(0.03)A $0.37E $0.28E
Q2 Jun $0.13A $1.07A $1.07A $0.75E $0.72E
Q3 Sep $0.73 $0.55A $0.55A $0.71E $0.67E
Q4 Dec $0.74A $0.59E $0.93E $1.10E $1.08E
Year* $1.90A $2.17E $2.42E $2.93E $2.76E
P/E Ratio 35x 31x 23x
Change (%) 37% 30%
FYE DEC FY 2017A FY 2018E FY 2019E
Revenue ($ mil.) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $116.9A $117.8A $117.8A $206.8E $146.8E
Q2 Jun $100.8A $220.2A $220.2A $251.8E $196.8E
Q3 Sep $149.4A $173.7A $170.0E $247.4E $190.4E
Q4 Dec $193.8A $259.0E $226.0E $294.0E $237.0E
Year* $560.9A $771.0E $734.0E $1,000.0E $771.0E
Change (%) 37% 30%

*Adjusted EPS Numbers may not add up due to rounding.

Q3:18 Highlights

  • Product sales rose 17% YOY to $133.3 million as 184% growth in sales of other products offsets 45% decline in sales of BioThrax. Contract manufacturing revenues improved 17% YOY to $22.2 million, and contracts and grants revenues increased by 12% to $18.2 million.
  • The acquisitions of PaxVax and Adapt Pharma are expected to add $270-300 million to FY:19 revenues and be accretive to adjusted EPS. Through PaxVax, EBS gains vaccines for typhoid and cholera and a foothold in the US travelers' vaccines market. With Adapt Pharma, EBS acquires NARCAN, the only FDA-approved nasal spray for emergency treatment of opioid overdose.
  • EBS expects to file an Emergency Use Authorization submission for Nu Thrax in late 2019, clearing the way for deliveries of this next generation anthrax vaccine in 2019 under a $1.5 billion development and procurement contract.
  • The company is completing ACAM2000 deliveries under its existing contract and expects to negotiate a multi-year follow-on contract with CDC before year-end.
  • Phase 1 studies are underway for an anti-Zika virus immune globulin being developed as a therapeutic against the Zika virus. Completion of the Phase 1 study is expected in Q1:19 and progress towards commercialization could be rapid due to Fast Track designation by the FDA.
  • EBS successfully expanded sales of its BAT (Botulism Antitoxin) product in new territories and signed a distribution agreement for the BAT product in the EU.
  • EBS ended the quarter with $340 million of cash. The company incurred $768 million of debt in October in connection with the PaxVax/Adapt acquisitions, which also used $119 million of its cash.

  • EBS revised its guidance for FY:18 revenues upward from $715-755 million to $770-800 million. Adjusted net income was revised downward from $110-125.

NV5 Global Inc. (NVEE)

Chart NVEE data by YCharts

NVEE reports 14% increase in Q3:18 revenues and 9% adjusted EPS growth. High single-digit organic growth, a strong M&A pipeline, and new project wins position NVEE for continued robust gains. NVEE shares are up more than 50% YTD. We rate these shares BUY and reiterate our $100 price target.

Company Description

NV5 Global, Inc. is a provider of professional and technical engineering and consulting solutions in the infrastructure, energy, construction, real estate and environmental markets. The company's clients include the U.S. federal, state and local governments, and the private sector.

52-Week Range

Shares Outstanding

$40.01 - $96.70

12.48M

Total Debt

Debt / Equity

33.25M

3.5%

Insider / Institutional 21.88% / 63.28% ROE (LTM) 13.10%
Public Float 9.98M Book Value / Share $24.34
Market Capitalization 828.81M Daily Volume (3 mo. Avg.) 91.3k
FYE DEC FY 2017A FY 2018E FY 2019E
EPS ($) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $0.39A $0.59A $0.59A $0.70E $0.72E
Q2 Jun $0.56A $0.91A $0.91A $0.94E $1.16E
Q3 Sep $0.75A $0.82A $0.98E $0.98E $1.37E
Q4 Dec $0.71A $0.94E $0.86E $1.23E $1.23E
Year* $2.38A $3.27E $3.25E $3.84E $4.48E
P/E Ratio 34.1x 24.8x 21.1x
Change (%) 55.9% 37.5% 17.5%
FYE DEC FY 2017A FY 2018E FY 2019E
Revenue ($ mil.) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $64.0A $94.5A $94.5A $115.3E $115.3E
Q2 Jun $83.7A $104.0A $104.0A $126.9E $126.9E
Q3 Sep $91.2A $104.2E $109.5E $127.1E $133.6E
Q4 Dec $93.9A $120.2E $108.0E $146.7E $131.8E
Year* $333.0A $423.0E $416.1E $516.0E $507.6E
Change (%) 48.7% 27.0% 22.0%

* Numbers may not add up due to rounding.

* All numbers are non-GAAP.

Q3:18 Highlights

  • Q3:18 revenues rise 14% YOY to $104.1 million, fueled by 8% organic growth and contributions from recent acquisitions. The company exited the quarter with backlog up 24.6% YOY to $342.3 million and 8.6% higher sequentially. NVEE targets FY:18 revenues 25-29% higher at $415-430 million.
  • EBITDA improved 10% YOY to $14 million and EBITDA margins were flat at 17% in Q3:18 versus Q3:17.
  • Adjusted EPS grew 9.3% YOY, NVEE is guiding for FY:18 adjusted EPS 36-45% higher at $3.23-$3.43.
  • During Q3, the company was awarded a $5 million contract with the New Jersey DOT, a $10 million contract with the New York City DOT, and a $20 million contract with California Transportation District 10.
  • NVEE continues to have plenty of acquisition candidates in the pipeline that can expand its geographic footprint and service lines. The November acquisition of CHI Engineering provides a strong platform for NVEE's expansion in the LNG, LPG and natural gas markets.

  • We rate these shares BUY-Long-Term and reiterate our $100 price target.

Primary Risks

  • An economic downturn could restrict the company's access to capital markets and slow acquisition-related growth.

Harsco Corporation (HSC)

Chart HSC data by YCharts

The company announced third quarter results better than our expectations with revenue up 16% and adjusted EPS up 100%. HSC raised its full year FY18 adjusted EPS guidance and expects business momentum to continue in 2019 as well. We maintain our BUY rating and increase our target price to $33.00 per share.

Company Description

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

52-Week Range

Shares Outstanding

$15.55 - $30.05

80.31M

Total Debt

Debt/Equity

$640.28M

27.9%

Insider/Institutional 1.02% / 87.78% ROE (LTM) 25.19%
Public Float 79.65M Book Value / Share $3.26
Market Capitalization 1.75B Daily Volume (3 mo. Avg.) 490.28k
FYE DEC FY 2017A FY 2018E FY 2019E
EPS ($) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $0.11A $0.22A $0.22A $0.27E $0.26E
Q2 Jun $0.22A $0.36A $0.36A $0.41E $0.40E
Q3 Sep $0.20A $0.40E $0.31A $0.41E $0.40E
Q4 Dec $0.20A $0.30E $0.32E $0.34E $0.34E
Year* $0.74A $1.28E $1.21E $1.43E $1.41E
P/E Ratio 37.8x 21.8x 19.5x
Change (%) 53.2% 73.0% 12.1%
FYE DEC FY 2017A FY 2018E FY 2019E
Revenue ($ mil.) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $372.5A $408.0A $408.0A $430.4E $430.4E
Q2 Jun $394.9A $431.9A $431.9A $455.9E $455.9E
Q3 Sep $384.6A $445.4A $424.6A $469.9E $448.9E
Q4 Dec $454.9A $492.5E $496.6E $518.9E $523.1E
Year* $1,607.0A $1,779.0E $1,761.2E $1,875.3E $1,858.5E
Change (%) 10.7% 10.6% 5.5%

* Numbers may not add up due to rounding.

* All numbers are non-GAAP.

Q3:18 Highlights

  • Q3:18 revenue was $445 million, up 16% from Q3:17, largely attributable to revenue growth across all segments - Metals & Minerals (+5% YOY), Industrial (+20% YOY), and Rail (+62% YOY).
  • HSC delivered non-GAAP operating margin of 12.9%, compared to 11.9% in Q2:18 and 10.2% in Q3:17. Adjusted operating income increased 47% to $57.5 million.

  • The turnaround in the Rail segment continues to gain momentum. The Rail segment delivered its highest quarterly operating profit in many years due to strong shipments of equipment and parts.
  • Management noted that the backlog trend across all segments is positive which should provide a boost to revenue in FY19.
  • For the full year of 2018, management expects adjusted operating income to be between $185 million and $190 million, and adjusted EPS to be between $1.24 and $1.29.
  • We marginally adjust our estimates based on the results and management commentary. We maintain our BUY rating and increase our target price to $33.00, with an implied capital appreciation potential of 18%.

Primary Risks

  • A slowdown in global steel production and demand could adversely affect the M&M segment (HSC's largest revenue contributor).

  • Difficulties from acquisition integration could adversely affect operating costs and expected benefits from those acquisitions.

Conrtol4 Corporation (CTRL)

Chart CTRL data by YCharts

The company announced third quarter results in line with the expectations. CTRL marginally lowered its full year FY18 revenue guidance, while raising its EPS guidance. We maintain our BUY rating and lower our target price to $30.00 per share.

Company Description

Control4 is a leading provider of smart home and business solutions that are designed to personalize and enhance how consumers engage with an ever-changing connected world. Their products unlock the potential of connected devices, making entertainment systems easier to use and more accessible, homes and businesses more comfortable and energy efficient, and individuals more secure.

52-Week Range

Shares Outstanding

$15.59 - $37.62

26.71M

Total Debt

Debt/Equity

$0.00

0%

Insider / Institutional 1.37%/84.15% ROE (LTM) 11.53%
Public Float 26.4M Book Value/Share $6.77
Market Capitalization 485.02M Daily Volume (3 mo. Avg.) 423.35k
FYE DEC FY 2017A FY 2018E FY 2019E
EPS ($) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $0.12A $0.21A $0.21A $0.24E $0.24E
Q2 Jun $0.32A $0.42A $0.42A $0.42E $0.41E
Q3 Sep $0.35A $0.38A $0.35E $0.40E $0.39E
Q4 Dec $0.40A $0.43E $0.42E $0.48E $0.47E
Year* $1.19A $1.44E $1.40E $1.54E $1.51E
P/E Ratio 20.6x 17.1x 16.0x
Change (%) 40.3% 20.8% 6.9%
FYE DEC FY 2017A FY 2018E FY 2019E
Revenue ($ mil.) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Mar $50.2A $59.1A $59.1A $65.0E $65.0E
Q2 Jun $61.4A $69.2A $69.2A $76.1E $76.1E
Q3 Sep $64.7A $71.6A $71.2E $78.7E $78.3E
Q4 Dec $68.3A $73.8E $73.8E $81.2E $81.2E
Year* $244.7A $273.8E $273.4E $301.1E $300.7E
Change (%) 17.2% 11.9% 10.0%

* Numbers may not add up due to rounding.

* All numbers are non-GAAP.

Q3:18 Highlights

  • Q3:18 revenues were $71.6 million, up 11% from Q3:17, largely attributable to revenue growth in both North America (+11% YOY) and international (+13% YOY) segment on account of new dealer additions as well as growth from existing dealers.
  • CTRL delivered non-GAAP gross margin of 53.2%, compared to 53.9% in Q2:18 and 52.6% in Q3:17.
  • The North American dealer network grew -7% to 3,356 dealers in Q3:18, while number of international dealers grew -14% to 1,462.
  • CA-1 controller saw significant traction in Q3:18, and the company expects the demand to remain robust in 2018.
  • For the full year of 2018, CTRL expects revenue to be between $272 million and $274 million, and non-GAAP net income to be between $39 million to $40 million.
  • We marginally adjust our estimates based on the results and management commentary. We maintain our BUY rating and lower our target price to $30.00, with an implied capital appreciation potential of 22%.

Primary Risks

  • Projected sales and earnings are dependent on economic growth in the company's target markets. Unexpected political or economic shocks could interrupt consumer spending in these regions.

  • Market is highly fragmented and competitive with presence of large established MNCs which have larger resources than CTRL.

Kulicke and Soffa Industries, Inc. (KLIC)

Chart KLIC data by YCharts

The company beat our revenue and adjusted EPS estimate easily, as revenue surged in the equipment segment. We adjust our earnings estimates and maintain our BUY rating maintaining our price target at $31.20.

Company Description

Kulicke and Soffa is a global leader in the design and manufacture of semiconductor, LED, and electronic assembly equipment. In recent years, the company has expanded its product offerings through strategic acquisitions and organic development, adding Advanced Packaging and a broader range of expendable tools to its core ball bonding product line.

52-Week Range

Shares Outstanding

$17.40 - $28.69

67.17M

Total Debt

Debt/Equity

$15.19M

1.8%

Insider/Institutional 1.86% / 90.65% ROE (LTM) 6.30%
Public Float 65.56M Book Value/Share $13.11
Market Capitalization 1.44B Daily Volume (3 mo. Avg.) 599.87k
FYE SEP FY 2017A FY 2018E FY 2019E
EPS ($) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Dec $0.22A $0.53A $0.53A $0.28E $0.42E
Q2 Mar $0.40A $0.51A $0.51A $0.59E $0.43E
Q3 Jun $0.62A $0.86A $0.57E $0.83E $0.66E
Q4 Dec $0.53A $0.28E $0.44E $0.55E $0.57E
Year* $1.77A $2.18E $2.05E $2.25E $2.11E
P/E Ratio 14.6x 11.8x 11.5x
Change (%) 128.9% 11.0% 3.1%
FYE SEP FY 2017A FY 2018E FY 2019E
Revenue ($ mil.) ACTUAL CURRENT PREVIOUS CURRENT PREVIOUS
Q1 Dec $149.6A $213.7A $213.7A $184.1E $222.6E
Q2 Mar $199.6A $221.8A $221.8A $252.4E $230.7E
Q3 Jun $243.9A $268.8A $256.2E $292.4E $270.9E
Q4 Sep $215.9A $184.5E $227.2E $239.5E $253.2E
Year* $809.0A $888.8E $918.9E $968.4E $997.3E
Change (%) 29.0% 9.9% 9.0%

Q3:18 Highlights

  • Q3:18 revenues were $268.8 million, up 10.2% from Q3:17, on strong volume growth in the core business, offset some by weaker pricing.
  • Gross margin was 47.2%, up from 46.7% in the prior year. The margin came in higher than forecast due to less exposure this quarter to lower margin LED equipment, and a greater proportion of higher margin ball bonder equipment.
  • Operating profit margin rose to 24.0% of revenue in the quarter vs. 21.8% in the prior year, driven by the strong gross margin and a lower SG&A ratio.
  • Diluted earnings per share in Q3:18 was $0.86 vs. $0.68 (adjusted) in Q3:17. Diluted share count was down 3.0% as the company has been buying back shares.
  • Management guided Q4:18 revenues in the $180-190 million range, compared to $215.9 million in the comparable prior year quarter.
  • We adjust our earnings estimates for FY:18 and FY:19 to $2.18 and $2.25, respectively, and maintain our BUY rating, while maintaining our price target to $31.20.

Primary Risks

  • The company operates in a highly cyclical business environment, which can result in prolonged periods of low demand.
  • The company is exposed to foreign currency risk, as it does most of its business outside the United States. Further, it is exposed to potential risks from increased tariffs as the current trade war continues.

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.