Strategic Education, Inc.

STRA Details

Strategic Education, Inc. (NASDAQ: STRA) provides high-quality and affordable post-secondary education services through campus and online-based offerings to support individualized learning for students. At the beginning of Q1FY21, STRA re-organized its structure and started operating in three segments, namely 1) U.S. Higher Education (USHE), which provides certificate and degree programs to working adults through Strayer University and Capella University. 2) Alternative Learning, a new segment that is centered on fostering and maintaining relationships with large employers to build employee education benefits program that provides employees access to skill-based training, certificate and degree programs, and 3) Australia/New Zealand, which provides certificates and degree programs through Torrens University in Australia and Media Design School in New Zealand. The company generates its revenue from net course registration and enrollment, tuition, and other fees. As of June 01, 2021, the company’s market capitalization stood at USD 1.74 billion.

UNCF partnership: On April 28, 2021, United Negro College Fund (UNCF) announced its partnership with the company to provide online professional training for up to 1500 staff at Historically Black Colleges and Universities (HBCUs) and Predominantly Black Institutions (PBIs). UNCF partnered with the company last year and successfully provided training to 400 HBCU members at 14 institutions.

Q1FY21 Results: The company reported a 9.43% increase in revenues to USD 290.33 million in Q1FY21 (ending March 31, 2021) compared to USD 265.30 million in Q1FY20 (ending March 31, 2020), primarily driven by the inclusion of the Australia/New Zealand segment. The USHE segment contributed 78.02%, the Australia/New Zealand segment contributed 17.65%, and the Alternative Learning Segment contributed 4.33% of the total revenues in Q1FY21. The company recorded a 14.90% increase in total enrollment during the quarter. However, the company reported a fall in net income to USD 9.57 million in Q1FY21 compared to USD 35.23 million in Q1FY20 due to the one-time inclusion of restructuring cost. As of March 31, 2021, long-term debt stood at USD 141.82 million.

Key Risks: Strayer University and Capella University are higher education providers and therefore are subjected to stringent laws and regulations from both the federal and state levels by the respective authorities. The institutions that come under the higher Education Act participate in various Title IV programs that require significant regulatory scrutiny. If the universities are not compliant with the laws and regulations, the company could lose its access to Title IV program funds, which could harm its operational and financial affairs.

Outlook: For FY21, the company expects its revenues to be in the range of USD 1.16 billion to USD 1.18 billion. STRA is projecting its EBITDA in the range of USD 245 million to USD 265 million, with the operating income to be around USD 175 million to USD 195 million. It expects its adjusted EPS to be around USD 5.20 to USD 5.50. STRA also estimated its capital expenditure for FY21 to be around USD 50 million to USD 55 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

STRA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: STRA's share price has declined by 57.44% in the past twelve months and is currently trading in the lower band of the 52-week range of USD 70.51 to USD 187.97. The stock is currently trading far below its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 83.87. On the technical chart, the next support level is USD 68.00. Considering the significant correction in the stock price in the past twelve months, decent fundamentals, robust profitability and balance sheet, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 73.42, up by 3.64% as of June 01, 2021.

* 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.

Standard Motors Products, Inc.

SMP Details

Standard Motor Products, Inc. (NYSE: SMP) is a leading independent manufacturer, distributor, and marketer of replacement parts for motor vehicles in the automotive aftermarket industry, with an increasing focus on the original equipment and original equipment service markets. The company operates via two major operating segments, 1) Engine Management, focused on manufacturing and re-manufacturing ignition and emission parts, ignition wires, battery cables, fuel system parts and sensors for vehicle systems, and 2) Temperature Control, focused on air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories, and windshield washer system parts. As of June 01, 2021, the company’s market capitalization stood at USD 1.02 billion.

Inorganic Growth Initiatives: On June 01, 2021, the company acquired 100% of Trombetta Corp for USD 108 million. Trombetta is a leading global provider of power management and power switching products to OE customers and has annual revenues of ~USD 60 million. The acquisition is in line with SMP’s endeavour to expand beyond its main aftermarket business. Earlier, on March 08, 2021, the company acquired certain assets and liabilities of the particulate matter sensor business of Stoneridge, Inc., which includes manufacturing lines in Lexington, Ohio, and Tallin, Estonia. The business has been reported to generate ~USD 12.0 - 14.0 million in annual revenue. The acquisition helps SMP expand further into the original equipment heavy-duty market.

Loss of a Major Client: In December 2020, a large retail customer of the company announced its decision to pursue a private brand strategy for its engine management products. This customer had a purchase run rate of about USD 140 million at the time of the announcement. The company stated that it plans to take the necessary steps to reduce costs in light of this development.

Q1FY21 Results: The company reported a slight increase of 8.75% in total revenue to USD 276.55 million in Q1FY21 (ending March 31, 2021) compared to USD 254.30 billion in Q1FY20. Revenue from the Engine Management segment increased by 5.42% to USD 212.02 million in Q1FY21 from USD 201.12 million in Q1FY20, despite a substantial reduction in sales due to the loss of a major account. Net earnings for Q1FY21 were USD 21.0 million, 2.43x more than USD 8.63 million in Q1FY20.

SMP YoY Performance Measures (Source: Q1FY21 Investor Presentation)

Key Risks: The company’s five largest individual customers accounted for 68% of its total revenue in FY20. The loss of any such customer, or a significant reduction in purchases by them, could have a material adverse effect on its business and financial condition. In addition, there is substantial price competition in the industry, due to various reasons including the continuously changing industry trends, the impact of offshore suppliers in the marketplace (particularly in China), and the consolidated purchasing power of large customers, among others. As a result, the company may have to reduce its prices to remain competitive, thus impacting its profit margins.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SMP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SMP fell 4.00% in the past 6 months and is currently trading around the mid-point of the 52-week range of USD 37.65 to USD 55.29. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 52.76. On the technical chart, the next support level is USD 43.00. Considering the correction in the stock price in the past 6 months, the recent inorganic growth initiatives, strong financial performance, robust balance sheet, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 46.02, up by 2.22% as of June 01, 2021.

* 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.

Amalgamated Financial Corp.

AMAL Details

Amalgamated Financial Corp. (NASDAQ: AMAL) is the holding company of Amalgamated Bank, a New York-based state-chartered bank. The company operates with six branches, out of which three are in New York City, while one each is in Washington D.C., San Francisco, and Boston. The company provides a complete suite of commercial and retail banking products, investment management services, and trust and custodial services to consumers and businesses. This includes Commercial Real Estate loans (CRE), Residential Mortgage Loans, Multifamily Mortgages, and Commercial and Industrial Loans (C&I). AMAL also covers politically active customers such as those engaged in campaigns, political action committees (PACs), and state and national party committees, and refers to their deposits as Political Deposits. As of June 01, 2021, the company’s market capitalization stood at USD 506.24 million.

Reorganization as Holding Company: Effective March 1, 2021, the Company (Amalgamated Financial Corp.) acquired all the outstanding stock of Amalgamated Bank in a share exchange transaction (the Reorganization) under New York law. Class A common stock of the bank was exchanged for the company's common stock on a one-for-one basis. As a result, the bank became the sole subsidiary of the Company, the Company became the holding company for the Bank, and the Bank's stockholders became stockholders of the Company. Before the effective date of the reorganization, the Company did not have any operational activity. The holding company structure provides enhanced flexibility to the management to pursue long-term, strategic opportunities.

AMAL Financial Trends (Source: Q1FY21 Earnings Presentation)

Q1FY21 Results: The company reported a 10.72% decline in total interest and dividend income to USD 43.41 million in Q1FY21 (ending March 31, 2021) compared to USD 48.63 million in Q1FY20. Interest income from loans contributed 71.65% of the total interest and dividend income in Q1FY21. The company reported a rise of 27.07% in net income to USD 12.18 million compared to USD 9.54 million in Q1FY20. As of March 31, 2021, the company recorded a 7.15% sequential growth in total deposits to USD 5,720 million compared to USD 5,338 million as of December 31, 2020. Net Interest Margin (NIM) decreased by 61 bps YoY to 2.85% for Q1FY21. Non-Performing Loans (NPAs) decreased slightly by 1.45% sequentially to USD 81 million as of March 31, 2021.

Key Risks: As of December 31, 2020, 92% of the properties securing the company’s CRE, multifamily, and construction loans were situated in the eastern states of New York and Washington D.C, and the western state of California. This exposes the company to geographical concentration risk. A slowdown or disruption of business in these areas could hamper the company's sales and financial health.

Outlook: The company expects its core pre-tax earnings to be in the range of USD 72 million to USD 88 million for FY21, excluding any impact from solar tax equity income and changes in Fed interest rate targets. AMAL is estimating its balance sheet to grow by approximately 10%, driven by the growth in deposits. It is projecting its core expenses to be higher in Q1 and Q2 of FY21 compared to the second half of FY21 due to strategic projects and investments.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AMAL Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AMAL’s share price decreased by 9.88% in the past three months and is currently leaning towards the mid-point of the 52-week range of USD 10.20 to USD 20.22. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 18.60. On the technical chart, the next support level is USD 15.15. Considering the slight correction in the stock price in the past three months, solid track record, recent reorganization and management changes, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 16.60, up by 2.03% as of June 01, 2021.

* 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.