U.S. Xpress Enterprises, Inc.
USX Details
U.S. Xpress Enterprises, Inc. (NYSE: USX) is one of the largest asset-based truckload carriers in the US, and offers a wide range of services using its own truckload fleet and third-party transporters through its non-asset-based truck brokerage system. USX generates revenue from two segments, namely, 1) Truckload segment, offering trucking services through Over-The-Road (OTR) and dedicated type contracts, and 2) Brokerage segment, generating revenue via brokering freight to third-party operators. As of June 29, 2021, its market capitalization stood at USD 470.76 million.
Strategic Investments: On June 15, 2021, the company launched a new business unit, Xpress Technologies, which utilizes new technologies to build a digital freight marketplace for the provision of enhanced services. The new system helps move goods on time and provides greater visibility into operations. In addition, as of March 31, 2021, USX also holds 353,604 shares worth USD 5.0 million in TuSimple, an autonomous trucking technology company. On April 15, 2021, TuSimple completed its initial public offering (IPO) at an issue price of USD 40. Accordingly, USX will adjust its investment to the new fair value beginning the Q2FY21 and record it as an unrealized gain on equity securities.
Q1FY21 Results: The company reported a 4.21% rise in total operating revenue to USD 450.76 million in Q1FY21 (ending March 31, 2021), including USD 368.92 million and USD 81.84 million of Truckload and Brokerage operating revenue, respectively, compared to total operating revenue of USD 432.57 million in Q1FY20. USX reported the increase in net income to USD 2.66 million in Q1FY21 vs USD 9.23 million of loss incurred in Q1FY20. USX’s average revenue per tractor per week improved by 5.36% to USD 3,912 in Q1FY21 from USD 3,713 in Q1FY20.
Quarterly Financial Metrics (Source: Earnings Call Supplement, Q1FY21)
Key Risks: USX’s Class B common stock has five votes per share, while Class A common stock has one vote per share. This concentrates voting control with certain members of the Fuller and Quinn families (Max Fuller and Patrick Quinn founded the company in 1985) who hold Class B shares. This concentration of voting power limits the ability of other shareholders to influence corporate matters.
Outlook: In FY21, the company expects to spend USD 130.0-150.0 million in capital expenditures so as to keep the average age of the equipment relatively constant. This amount could increase to fund additional profitable growth opportunities. USX expects contract rates to be increased by 10-15% for FY21.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Analysis by Kalkine Group)
USX Daily Technical Chart
Stock Recommendation: USX stock fell 20.87% in the past 3 months and is currently trading close to the mid-point of the 52-week range of USD 5.65 to USD 12.33. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 39.03. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 11.32. On the technical chart, the next support level is USD 7.90. Considering the company's market dominance, improvement in cash conversion ability, strategic investments, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 9.40, up 0.32% as of June 29, 2021.
*All forecasted figures and Industry Information have been taken from REFINITIV.
*The reference data in this report has been partly sourced from REFINITIV.
*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.
Intelligent Systems Corporation
INS Details
Intelligent Systems Corporation (NYSE: INS) is a provider of credit technology solutions and processing services to the FinTech industry through licensing and financial transaction management software. Its operations are handled by its wholly-owned subsidiary CoreCard Software, Inc. (CoreCard) in Romania, India, and the UAE. The company’s service revenue consists of fees for software support, maintenance, and professional services relating primarily to software customizations provided to both license and processing customers. As of June 29, 2021, its market capitalization stood at USD 273.49 million.
Expansion into Foreign Markets: On April 19, 2021, CoreCard Software, DMCC, an affiliate of CoreCard, announced its collaboration with Al Ansari Exchange, the UAE-based foreign exchange and worldwide money remittance company. Under this partnership, CoreCard will provide prepaid card processing services for the Al Ansari Exchange Visa Platinum Multi-Currency Travel Card, which can be used at any merchant around the world that accepts Visa and can be recharged with 17 different currencies. This came almost concurrently with opening a subsidiary of CoreCard in Dubai, UAE, which helped the company gain access to new markets including the Middle East, Europe, Asia Pacific, and Africa.
Q1FY21 Results: The company reported an increase of 12.91% in total net revenue to USD 8.91 million in Q1FY21 (ending March 31, 2021) compared to USD 7.89 million in Q1FY20 (ending March 31, 2020), primarily due to an increase in the number of customers and completion of professional services contracts. Revenue from professional services accounted for 64.49%, and processing and maintenance services contributed 29.12% to the total net revenue in Q1FY21. Net income for Q1FY21 was USD 1.04 million, lower than USD 1.05 million in Q1FY20, primarily due to the costs of opening a new office in Dubai and developing CoreCard’s new processing platform.
Key Risks: The company’s primary customer, Goldman Sachs Group, Inc., accounted for 71% and 66% of the consolidated revenues in Q1FY21 and Q1FY20, respectively. Undue reliance on one customer for business could hurt the company’s financial health in the future.
Outlook: For FY21, INS expects its topline to grow by 20- 25% as compared to the prior year. The software provider expects to recognize significant license revenue in both Q2FY21 and H2FY21 even though it did not generate any in Q1FY21.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Analysis by Kalkine Group)
INS Daily Technical Chart
Stock Recommendation: INS’ share price has declined by 20.50% in the past 9 months and is currently leaning towards the lower band of the 52-week range of USD 29.80 to USD 54.58. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 38.79. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 37.60. On the technical chart, the next support level is USD 26.20. Considering the correction in the stock price in the past 9 months, expansion to new markets, debt-free company, current valuation, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 31.26, up 1.53% as of June 29, 2021.
*All forecasted figures and Industry Information have been taken from REFINITIV.
*The reference data in this report has been partly sourced from REFINITIV.
*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.
Sharps Compliance Corp.
SMED Details
Sharps Compliance Corp. (NASDAQ: SMED) is a leading national healthcare waste management provider specializing in controlling waste streams such as medical, pharmaceutical, and hazardous waste. The company offers solutions that best fit the needs of its customers for the collection, transportation, and treatment of medical waste. These include mailbacks, route-based pickup services, unused medication disposal, third-party treatment services, and other solutions. SMED provides waste management services to several markets like retail clinics, professional offices, home health care, pharmaceutical manufacturers, long-term care facilities, government agencies, etc. SMED’s leading products are the Sharps Recovery System and the MedSafe Medication Disposal System, which comprises more than 50% of its revenue. As of June 29, 2021, SMED’s market capitalization stood at USD 177.69 million.
Expansion of Route-Based Services: On March 02, 2021, SMED announced that it has expanded its direct route-based services in Arizona, Colorado, New Mexico, and Utah, and increased its geographic footprint to 37 states. The company’s increase in revenue in the past also reflects the benefits of the expansion of route-based offering solutions.
9MFY21 Results: The company reported a sharp uptick of 49.54% in revenues to USD 57.69 million during 9MFY21 (ending March 31, 2021) compared to USD 38.58 million during 9MFY20, driven by an increase in billings in the retail, professional, home healthcare, long term care, and pharmaceutical manufacturer markets. The company witnessed a significant increase in net income to USD 7.78 million in 9MFY21 from USD 0.10 million in 9MFY20. SMED recorded an EBITDA of USD 11.8 million during 9MFY21 compared to the EBITDA of USD 1.5 million during 9MFY20.
Consistent Growth in Revenues (Source: Investor Presentation, May 2021)
Key Risks: SMED’s revenue from its top two customers represented approximately 35% and 27% of the total revenue in FY20 and FY19, respectively. In addition, two of its customers accounted for 44% and 19% of the total accounts receivable balance in FY20 and FY19, respectively. Excessive dependence on certain customers for business could hurt the company’s financial health.
Outlook: The waste management services provider expects a strong flu immunization period potentially followed by one for COVID-19, and anticipates growth in the long-term care, home healthcare, and professional markets.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Analysis by Kalkine Group)
SMED Daily Technical Chart
Stock Recommendation: SMED's share price has declined by 24.62 % in the past 3 months and is currently leaning close to the mid-point of the 52-week range of USD 5.45 to USD 18.66. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 31.02. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 12.46. On the technical chart, the next support level is USD 8.95. Considering the company's consistent track record, expansion of route-based services, high customer retention rates, low leverage, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 10.50, down 0.19% as of June 29, 2021.
*All forecasted figures and Industry Information have been taken from REFINITIV.
*The reference data in this report has been partly sourced from REFINITIV.
*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.
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