Thursday, September 30, 2021

Holden Patterson-SSE PLC (SSEZY) AIM Equity Presentation


 

A Small Cap Equity holding: Teladoc Health, Inc. (TDOC $142.98) “TelaHold” By: Adam Webb, AIM Student at Marquette University

 

Teladoc Health, Inc. (TDOC $142.98) “TelaHold”

By: Adam Webb, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • Teladoc Health, Inc. (NYSE: TDOC) is a leading provider of telehealth assistance. TDOC covers numerous medical needs and is in the process of  growing its treatable conditions. This has allowed TDOC to consistently increase its client visits every year represented by 16.4% this year compared to prior.
  • As Covid-19 becomes less prevalent in society, Teladoc is losing its tailwinds that resulted from lockdowns and the virtual world. However, it is exposed to an increased total addressable market relative to before the pandemic as well as vast expansions in its mental health operations and a change to a value based care revenue model.
  • As the Livingo business has become engrained in Teladoc’s operations, the company has been able to differentiate itself from its formattable opponents like the Google backed Amwell, and Amazons attempt telemedicine Amazon Care.
  • TDOC has a healthy balance sheet and will be able to cover its expenses for the foreseeable future allowing the company to continue to pursue the strategic goals and disruption that were stated when the company was pitched in 2019.

Key Points

A study by Mckinsey & Co. suggests that after reopening, telehealth is used more than prior to the pandemic at a multiple 38x, and is likely to stay at that level. Qualitatively, we are seeing the stay-at-home renaissance in the workplace, so should we expect to see that in the healthcare industry aswell? Logic says that if one is not keen on commuting to work every day, that person will not have a desire to meet with their health care provider in person for things that can be taken care of virtually. Surveys conducted on physicians claim they also are now more keen on telehealth than prior to the pandemic. Prior to the pandemic 11% claimed they would practice medicine virtually, now 40% claim they will.

TDOC saw the opportunities for its virtual services when the pandemic came about. The company increased its Marketing expense by 106%, its Selling expense by 137%, and its R&D expense by 155%. This resulted in an explosion in brand awareness as according to Google Trends, the company generates on average double the amount of interest as before the pandemic. In addition, the digital renaissance has forced people to gain competence in virtual meetings and the internet. In particular, the highest spending health care clientele elderly people. The demographic with the lease experience to the internet, post pandemic has had the opportunities to gain the ability to become proficient in internet use and virtual meetings. Such a phenomena may be responsible for TDOC’s continued revenue growth even as lockdowns and Covid-19 infections taper.

Numerous competitors have entered the telemedicine sector like Amwell, Google Health, and Amazon Care. Of these competitors, Google Health recently shut down, and Amazon Care is yet to make a meaningful market impact. Amwell remains the only formattable competitor but has lagged TDOC. TDOC’s revenue has grown by 120% year over year while Amwell decreased by 12% year over year with visits going down from 1.6 mil to 1.3 mil quarter over quarter. Not only has TDOC become the choice company among consumers, but businesses as well. It recently gained a use contract with HCSC, the fifth largest health insurance company in the US. As the Livongo merger settles in, we have understood more about the rationale of the acquisition. The Livongo merger allows TDOC to conduct whole person care delivery, and switch from a fee-for-service revenue model to value based care revenue model.

The disruptive thesis that was pitched in 2019 is still much in play. Of the many areas that Teladoc could continue to disrupt, mental health is becoming a prime candidate. Mental Health has become one of the most dynamic and most talked about areas of healthcare as stigmas against it continue to be disproven. It is estimated that one in five people struggle with their mental health. In addition, 56% of counties in the US don’t have a psychiatrist, 64% of counties have a shortage of mental health providers, and 70% of counties lack child psychiatrist. TDOC hopes to be the answer to this under cared for space.

What has the stock done lately?

Teladoc has fallen from $165.29 to $138.867 (-15.38%) since July 1st. Its downward trend has returned -9.81% against the Russel 2000 and has been apart of a greater pullback Covid-19 winners are facing. The equity price sits well below its 50-day moving average of $144.98.

Past Year Performance

Teladoc started the past year at a price of $200.77 and rose to its high on February 2nd 2021 of $286.58 but has fallen down to $143.09 accumulating a -28.71% performance year-to-date. A laggard in comparison to the Russell 2000 benchmark IWM which finished up 47.60%.

Source: FactSet
My takeaway

As people attempt to put Covid-19 behind them, they won’t forget the lessons they learned. Teladoc will come out of the pandemic superior to before. The expansion of addressable markets, domination of competition, and business model will ensure that Teladoc’s disruption will continue into the future and the company will find a path to profitability.

Source: FactSet


 

 

 

An International Equity holding: SolarEdge Technologies Inc. (SEDG, $269.46): “Something to Take the Edge Off” By: Dan Dunn, AIM Student at Marquette University

 

SolarEdge Technologies Inc. (SEDG, $269.46): “Something to Take the Edge Off”

By: Dan Dunn, AIM Student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • SolarEdge Technologies (NYSE:SEDG) develops alternative energy technology through its solar power solutions. Their main inverter segment drives solar revenue from the mainland U.S., Netherlands, Europe, China, and Russia. SEDG is headquartered in Herzliya, Israel.
  • SolarEdge has continued to make strides with product penetration. Earnings for Q2 stated a third consecutive quarter of strong growth, with total revenue 18% higher than Q1. European sales reached a new high of just over $200 million, and U.S. pulled in $175.1 million, beating market expectations.
  • Non-solar technology continues to develop, with powertrains leading sales numbers on the e-mobility front. The non-solar revenues were $80 million. Storage beginning to be paired with inverter sales for installers.
  • Supply chain struggles have been mitigated through SEDG’s multiple store strategy, but takes losses through higher cost logistics at times. Component shortages continue throughout the technology industry, but management dismissed negative impacts on ability to meet increased demand.
  • Production in Vietnam was drastically reduced due to COVID impact, leading to necessary increases of production from plants in China, Hungary and Israel. Additional Chinese shipments to the U.S will negatively impact margins until conditions improve.
  • Expected bipartisan infrastructure bill can continue to drive stock price as the Biden administration focuses on cleaner energy and reduction of carbon outputs, as well as an expected emphasis on EV expansion.

Key points: SolarEdge continues to rapidly grow sales, both in Europe and in the U.S. Strong Q3 numbers and confident management adjusts revenues guidance for Q3 to $520-540 million, with the solar segment between $460-480 million. Margins are expected to be within 32-34%. While the company has confidence that they stay a leader in market share, management has difficulty identifying hard evidence in a rapidly growing environment. Ultimately, faith has been put in installers (customers) that will continue to sell the products to residential and commercial buyers. Continued exposure to these installers is expected to help lateral product penetration.

After a fairly aggressive 2019, acquisitions have cooled off as SEDG builds its product portfolio to support its inverters. Storage and EV support have become a research focus, as well as the continued integration of their software application to monitor solar inverters. As global markets continue to expand for energy storage, any continued growth in this segment will drive investor confidence.

SEDG recently added a new chief of marketing, as well as new CEO for their Kokam subsidiary. Yogev Barak takes over as marketing head, after a 25-year career with executive positions for HP and Applied Materials. SehWoong Jeong takes over for Kokam after leading the Automotive Batteries and ESS for Samsung SDI.

Risks continue to surround the company’s customer base, with 2 customers making up more than 10% of revenue from the U.S., and the top ten clients providing more than 60% of total revenue. Competition could become a real danger here, as the demand for solar energy support will continue to grow.

What has the stock done lately?

The stock has stabilized a bit in the last few months compared to the incredible run over the previous few years. The stock is down over 17% YTD after hitting a markable high of $371 in January. This was followed by a substantial sell-off, and the price has settled between $270 and $290 for much of the year.  

Past Year Performance: SEDG is still considered undervalued by the market, with the majority of price targets close to $330. High volume numbers have driven a volatile few years, and there is little surprise to see a sell off after the all-time high of $370.

Source: FactSet

My Takeaway

SolarEdge will benefit greatly from the passing of the infrastructure bill, as renewable energies are prioritized, and expansion becomes further subsidized. The demand for residential solar backups should continue to grow, especially when improving technology combines with the stressors that grid systems will have to manage during the EV revolution. Fears of attempting innovation too far outside SEDG’s comfort zone with their non-solar segment may deter investors if they continue to finish in the red. Revenues should see massive increases as solar technology becomes mainstream over the next 5 years. The AIM International Equity Fund should continue to hold its larger position at the very least through the final stages of the infrastructure bill.

Source: FactSet


A Small Cap Equity holding: Middlesex Water Company (MSEX, $105.74): “Wastewater is the New Gold” By: Logan Kreinz, AIM Student at Marquette University


Middlesex Water Company (MSEX, $105.74): “Wastewater is the New Gold”

By: Logan Kreinz, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • Middle Sex Water Company (NYSE: MSEX) owns and operates regulated water utility and wastewater systems in New Jersey, Delaware and Pennsylvania. Middlesex services include water production, treatment, and distribution. It operates through two segments: Regulated (91% of total revenue) and Non-Regulated (9%). MSEX was founded in 1897 and is headquartered in Iselin, NJ.
  • September 9th, 2021, CEO Doll sells 3,000 of Middlesex (MSEX) stock.
  • August 30th, 2021, MSEX announced it has agreed to sell the regulated Delaware wastewater utility business to Artesian Wastewater Management, Inc. for 6.4 million in cash and other considerations. The transaction is subject to approval by Delaware Public Service Commission and is expected to finalize prior to December 31, 2021.
  • The company has filed for its first new rate base case since 2017, they are requesting to increase base rates by $31 million.
  • Net income growth for 2020 was 13.39%, and the EPS growth for 2020 was 8.41% this growth story for MSEX has been a contributor to the recent rally.

Key points: MSEX was added to the portfolio in April of 2021 at around $84 per share and since then has grown about 26%. The main contributor to this success is the sale of Delaware wastewater utility business to Artesian for $6.4 million in cash. Another main contributor to the rally has been the growth story of this small cap utility. Although utilities are extremely regulated, MSEX continues to have a strong relationship with its regulators. It has been able to maintain a ROE of 11% compared to the industry average of 9.8%. Along with that Middlesex is currently working on a major infrastructure campaign to enhance the safety and reliability throughout its water systems. They have currently invested over $190 million dollars over the last two years. They are expecting an additional $100 million dollars of Capex investments through 2022.

With the company increasing the capex over the coming years, MSEX decided to file for a rate adjustment with the New Jersey Board of Public Utilities requesting an increase of approximately $31 million to its base rates. MSEX is filing for recovery of investments made to address the aging drinking water infrastructure. This is the first-rate case filing since October 2017, the company anticipates the approval of this rate base case because of the strong relationship with regulators. If the rate case is approved the residential customer using 15,000 gallons of water per quarter would see their water bill increase by 67 cents a day.

The second quarter of 2021 the company reported a consolidated operating revenue of $36.7 million for Q2, as compared to $35.3 million for the same period in 2020. The $1.4 million increase is driven from the increase demand from retail water customers in MSEX service area.

What has the stock done lately?

Since reporting their 2Q2021 earnings on July 30, MSEX is up 4% to $105.74. The Russell 2000 is down .1% over the same period. This overperformance comes as investors react to the news of the sale of the Delaware wastewater business. In addition to the companies anticipated approval over the new rate base case.

Past Year Performance: MSEX has increased 67% in value over the past year, compared to the Russell 2000 which is up 45% during the same period. MSEX 52-week low is $59.60, and its high is $116.40.

Source: FactSet

My Takeaway

Middlesex water company has been a fun rally to be a part of for the last 8 months, however, I think now is the perfect time to sell and find a company who has more upside in the future. The stock has seen tremendous growth over the last year (67%) and I believe this momentum will start to run out over the next few months. When this stock was pitched last semester, it had a price target of $87. It is now trading at 105, and I have MSEX as a sell because we have seen a strong bull run over the last few months due to the sale of the wastewater business. I think this is a perfect time to capitalize on this run and take advantage of this extremely high evaluation.

Source: FactSet


Ciara Jones -Magna International (MGA) AIM Equity Presentation

Drew Kolz-McGrath RentCorp (MGRC) AIM Equity Presentation

Grace Flynn-Mitek Systems (MITK) AIM Equity Presentation

Madi Daleiden- Five Below (FIVE) AIM Equity Presentation

Wednesday, September 29, 2021

The Fourth Set of Fall 2021 Marquette AIM Program Student Equity Pitches/Q&A for Friday, October 1st


AIM Class of 2022 Student Equity Presentations on Friday, October 1st


AIM Class of 2022 Student Equity Presentations on Friday, October 1st

Due to continuing restrictions, live pitches will temporarily not be held in the AIM Room on Friday afternoons; however, you can still participate.

This is the link for the AIM equity write-ups (each week’s write-ups will be available on Thursday mornings): AIM Write-ups 10/01/21

This is the link for the YouTube videos of the 8-minute student presentations (each week these will be posted on Thursday afternoons)

If you would like to participate in the live Q&A session with the student presenters on Friday at 1:00 pm CST on Teams, please email Jessica Hoerres at: jessica.hoerres@marquette.edu

Please feel free to submit questions to be asked of the students by emailing them to david.krause@marquette.edu



 

 

Wednesday, September 22, 2021

The Third Set of Fall 2021 Marquette AIM Program Student Equity Pitches/Q&A for Friday, September 24th

AIM Class of 2022 Student Equity Presentations on Friday, September 24th


Due to continuing restrictions, live pitches will temporarily not be held in the AIM Room on Friday afternoons; however, you can still participate.


This is the link for the AIM equity write-ups (each week’s write-ups will be available on Thursday mornings): AIM Write-ups 9/24/21

This is the link for the YouTube videos of the 8-minute student presentations (each week these will be posted on Thursday afternoons)


If you would like to participate in the live Q&A session with the student presenters on Friday at 1:00 pm CST on Teams, please email Jessica Hoerres at: jessica.hoerres@marquette.edu

Please feel free to submit questions to be asked of the students by emailing them to david.krause@marquette.edu



Monday, September 20, 2021

A Small Cap Equity holding: Masonite International (DOOR, $114.45): “One Door Closes Another Opens” By: Drew Kolz, AIM Student at Marquette University

Masonite International (DOOR, $114.45): “One Door Closes Another Opens”

 By: Drew Kolz, AIM Student at Marquette University


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • Masonite International (NYSE:DOOR) engages in the design and manufacturing of interior and exterior doors for both the residential and nonresidential construction markets. DOOR does most of their business in the United States and Europe. 
  • With over $591 million in available liquidity, Masonite has flexibility to expand their Doors That Do More and MVantage strategies while also potentially make new acquisitions where they see fit.
  • Masonite will continue to be a direct beneficiary from the booming real estate market. The Dow Jones U.S. Real Estate Index is up 28.52% YTD and has shown no signs of decreasing yet. 
  • With sales predicted to be reach $4 billion by 2025, Masonite has reinvested in themselves and begun the construction of two new large facilities in South Carolina and Europe.

Key Points: When this stock was originally pitched, Masonite’s MVantage strategy was listed as the second main driver. After reviewing how the company has fared since then, it is safe to say that this vision has done exactly what they hoped. Behind the goal of decreasing costs and increasing margins, Masonite was able to announce that they just finished Q2 with their highest net sales and adjusted EBITDA since they became a publicly traded company in 2013. With these increased margins, Masonite will be able to continue to invest in making their doors as versatile as possible.

Covid-19 has completely reshaped the residential and nonresidential construction markets. With work from home becoming a new normal, people have become much more inclined to find new homes. In result, the suburban housing market has completely blown up. According to a survey done by The Neighbor, as many as 14-23 million people are expected to move in 2021. Furthermore, home ownership is up 11% in 2021. As people to continue to move out to the suburbs in search of lower cost of living and less populated areas, Masonite should continue to see demand for their doors.

Masonite’s strong balance sheet is something that is going to greatly benefit them going forward. With over $591 million in available liquidity and sales expected to nearly double from $2.1 billion to $4 billion by 2025, Masonite realized that now is the time to reinvest in themselves. With two new facilities expected to be completed by the middle of 2022, Masonite expects increased capacity and greater operational efficiency. Not to mention, the company remains extremely flexible if any potential acquisitions are to arise in the near future.

What has the stock done lately?

Over the course of the past 3 months, the stock has generated a -2.30% return. Despite the stock being slightly down over the course of the past 3 months, the price trend appears to be positive moving forward. With demand remaining strong in the residential end markets, and commercial end markets showing signs of recovery from the pandemic, there is no reason the stock price shouldn’t recover as well.

Past Year Performance: Masonite has returned 22.83% over the past year. While this number is lower than the benchmark’s return of 47.34%, Masonite will remain a big player in their industry. Over the last 52 weeks the stock has ranged from $78.00 to $132.22. On track for another record year in sales, there is plenty of reasons for optimism.  

Source: FactSet

My Takeaway

DOOR was originally added to the AIM portfolio with a price target of $115.18, representing a 29.83% upside. While the stock has been trading around this price target recently, I do not believe that it is time to sell. Masonite’s continued reinvestment in themselves has positioned the company for even more growth. Furthermore, with more and more people moving out of cities and looking for cheaper housing in the suburbs, demand for Masonite doors will remain strong. Until the housing market begins to slow down, I recommend the AIM portfolio hold DOOR.

Source: FactSet


A Small Cap Equity holding: TechTarget, Inc. (NASDAQ: TTGT, $90.39): “Amazon and Google’s Best Marketer” By: George Wong, AIM Student at Marquette University

 TechTarget, Inc. (NASDAQ: TTGT, $90.39): “Amazon and Google’s Best Marketer”

By: George Wong, AIM Student at Marquette University


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • TechTarget, Inc. (NASDAQ: TTGT) provides data-driven marketing analytics and sales-enablement solutions to a diversified customer base that includes Amazon, Google, and Microsoft. The company focuses on working with B2B technology companies.
  • TTGT is a market leader for purchase intent data, and the company believes its extremely large total addressable market (TAM) is underpenetrated. The company has grown its revenue at a CAGR of 26% since 2017.
  • The acquisition of BrightTALK in FY’20, a company that provides professional webinar hosting, has expanded TTGT’s subscription revenue/customer base. In Q2 FY’21, the company announced it had acquired Xtelligent Healthcare Media, which operates in a relatively untapped market (Healthcare) for TTGT.
  • Management has stated that the growing importance of privacy favors TTGT and their privacy-first approach.
  • TTGT has a strong balance sheet that had over $100MM in cash at the end of Q2 FY’21.

Key points: TechTarget is the provider of marketing analytics and solutions to some of the largest technology companies in the world. The long-term relationships TTGT has developed with its diversified and worldwide customer base has provided the company strong recurring revenue and overall operational stability. According to their 10-K, no customer accounts for more than 10% of total revenue. Overall, at the of FY’20, the company had over 1,500 customers.

TTGT’s products and services enable its B2B customers the ability to identify, reach, and influence key decision makers. Overall, the goal of TTGT’s offerings are for customers to utilize their detailed purchase intent data that is collected from enterprise technology organizations. Additionally, the company complements its analytics services by offering customized marketing programs. TTGT’s proprietary content has been built over the past twenty years, and it is difficult to replicate.

More recently, the company has focused on increasing its subscription revenue. Since 2016, the company has grown this type of revenue at a CAGR of 42%. Its subscription revenue as a percentage of total revenue has also seen considerable growth over the past four years (CAGR of 31%). Overall, the company’s subscription revenue accounted for 35% of total revenue at the of FY’20. Management expects this type of revenue to make up over 50% of total revenue in the next few years.

Through the acquisitions of BrightTALK and Xtelligent, TTGT has expanded its TAM and potential revenue opportunities. BrightTALK was acquired at the end of FY’20 and has benefited significantly from the increased demand for online events. The webinar and video content platform engages with over 200,000 unique users monthly. According to TTGT’s management team, Xtelligent is expected to “offer customers new opportunities to reach and engage highly targeted healthcare technology decision-makers.” As mentioned, the company has cash on-hand in case another attractive acquisition target emerges.

What has the stock done lately?

TTGT’s Q2 FY’21 earnings were released in the beginning of August, and the stock has been up 11% since. The company surpassed revenue and earnings estimates for the most recent quarter and has done that for the past four quarters. As mentioned, in the most recent quarter, TTGT acquired the largest marketing services company in B2B Healthcare Technology, Xtelligent Healthcare Media.

Past Year Performance: TTGT is up nearly 130% over the past year, but the stock still has room to grow. As mentioned, the customer base for TTGT is continuously growing, and the company has made strong acquisitions in markets where Management believes TTGT is underrepresented. Additionally, the company has outperformed the S&P 500 over the past year.

Source: FactSet

My Takeaway

TTGT is a market leader in an industry that is destined to grow. The need for data will not go away, and TTGT will continue to provide analytics and solutions to the largest companies in the world. The company’s management team is confident in its ability to expand its already leading market share as its TAM increases considerably over the next several years. Through acquisitions and product innovations, TTGT will remain businesses’ first choice for marketing analytics. Given these factors, TTGT should remain in the AIM Equity Fund.

Source: FactSet


An International Equity holding: LivaNova PLC (LIVN, $83.50): “LivaNova by your strengths” By: Andrew Duwa, AIM Student at Marquette University

LivaNova PLC (LIVN, $83.50): “LivaNova by your strengths”

By: Andrew Duwa, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • LivaNova PLC. (NASDAQ: LIVN) is a global medical company that designs and provides therapeutic products for patients, healthcare professionals, and systems primarily in the United States, Western Europe, and Asian Pacific.
  • LIVN continues to dominate aortic valve market, new competitors entering suture-less market
  • Announced early retirement of $450 million senior secured term loan, executes $125 million revolving credit facility
  • Experiencing a recovering demand for products on Covid-19 tailwinds, some risk of resurgence with new variants and hospital bed shortages
  • Begin clinical trials of OSPREY to treat obstructive sleep apnea

Key points: LivaNova continues to dominate the aortic valve market, which provides replacement valves for patients requiring open heart surgery. Even with new competition entering the market only 9 companies currently produce these valves, and only 3 offer suture-less valves. LivaNova no longer has as strong of market domination in this area but continues to control it none-the-less.

On August 16th, 2021LivaNova announced the retirement of a 5-year senior secured term loan, paying out $35.6 Million in accrued interest. This was funded by an offering of shares on August 6th, 2021, to reduce interest expenses by $39 million through Q2 of 2022. This move is expected to increase EPS by $0.20 and improve their financial standing.

Throughout 2020 and early 2021, a lag in demand for healthcare products occurred due to a variety of reasons. According to the United States Surgical Procedure Volume Database, major surgical procedures have increased substantially in 2021. These rates will stabilize through FY 2025 to a growth of 10%. This return in demand translated to a 41% increase in revenues in Q2 2020.

In Q2 of 2021, LivaNova received investigational device exemption FDA approval to begin confirmatory clinical trial of OSPREY, an implantable device to treat obstructive sleep apnea, with the first patient expected to be in Q4 of 2021. This type of sleep apnea is a common yet extremely dangerous condition that affects around 100 million globally, with approximately 25% receiving treatment. The most common treatment is continuous positive airway pressure, but only 46% of patients can comply with this treatment.

What has the stock done lately?

LIVN has grown 8.11% within the past month, peaking at around $90 per share. The continued growth from delayed procedures as well as capital restructure have aided LivaNova, and they are expected to turn a profit in the second half of 2021, which will only propel the company further.

Past Year Performance: LIVN has increased 83.68% in value over the past year, which has been a monster gain in a great year for healthcare companies. This growth will continue through 2021 as their dominant products and improved financial standing will aide this continued rise.

1 Year Stock Chart vs. Russel 2000

Source: FactSet

My Takeaway

The market domination that LivaNova has built, the introduction of new products, major sales increase due to a lag in demand in FY 2020 from Covid-19 and improved financial situation set LIVN up for continued growth even with their impressive 2021 already. Because of these reasons I recommend LivaNova as a buy.

1 Month Stock Chart from FactSet here

Source: FactSet


 

A Small Cap Equity holding: FormFactor, Inc. (FORM, $39.24): “R&D is Key” By: Grace Flynn, AIM Student at Marquette University

 FormFactor, Inc. (FORM, $39.24): “R&D is Key”

By: Grace Flynn, AIM Student at Marquette University

 


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • FormFactor, Inc. (NYSE:FORM) provides test and measurement solutions for semiconductors along the full integrated circuits life cycle. They provide a range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to semiconductor companies and scientific institutions.
  • In June 2021, FormFactor collaborated with Northrop Grumman Corporation to announce the availability of cryogenic wafer probe cards. This initiative was made to accelerate the development of superconducting compute allocations.
  • FormFactor’s 2nd quarter 2021 revenue increased 19% YTD, with a decrease in Foundry & Logic probe card market.  
  • FormFactor is continuing their R&D investments to keep up with complex chip structures, and their new facility is expecting shipments in 4Q21.

Key points: FormFactor has been volatile in the past year, as their sales revenue highly depends on three major customers, Intel, Samsung, and Taiwan Semiconductor Manufacturing Company. Their advanced packing play remains ongoing and their unique probe cards allow cost savings which is used to stabilize the shifts in the seductor industry.

On June 24, 2021, FormFactor, Inc. announced a fully automated cryogenic wafer probe system to accelerate the development of superconducting compute applications. The firm collaborated with Northrop Grumman Corporation, a company focused on global security and human discovery. Northrop Grumman is currently developing superconducting technologies which will deliver improvements in computing power and a reduction in energy consumption. This collaboration allows FormFactor to continue developing test and measurement solutions for complex and unique chip structures.

FormFactor’s 2Q21 revenue increased 19% YTD, which was largely driven by their DRAM and Flash products. Their Foundry & Logic probe cards revenue decreased 5% due to lower demand from a major customer, Intel. The low demand led to a slight decrease in gross margin and FormFactor will have to focus on expanding their customer base to overcome volatility in the market.

FormFactor is continuing their R&D investments to keep up with new and complex semiconductor chips as well as lower the cost of their probe cards. Their new 100,000 sq. ft manufacturing center in Livermore, CA is expecting shipments in the fourth quarter of 2021.

What has the stock done lately?

FormFactor is currently $39.24 and has seen positive returns in the last three months. In June, the firm’s priced dropped to $33.19, which was the lowest of the last three months. Since then, it has been steadily increasing to reach the highest recent price of $40.02 in September. FormFactor has had a 11.66% three-month return and a 11.70% one-month return. The firm’s 52-week range ranges from $22.73- $52.39.

Past Year Performance: FormFactor has had a -9.21% return YTD and a -13.32% return over last six months. FormFactor is highly volatile due to the semiconductor chip shortage and their customer concentration. The recent gains are due to their new initiatives for complex chip structures through their R&D spend and collaborations. FormFactor will need to continue their investments and work on their customer base to control the volatility in the semiconductor industry in the future.

Source:FactSet

My Takeaway

FormFactor has struggled this year due to the volatility of the semiconductor industry concerning chip shortages. But they have had a better sales mix within their Systems segment and are focused on new designs and utilizations. With their new initiatives to support different complex chips, like their new cryogenic probe system, FormFactor is in the position to still grow especially after their 2nd quarter results and positive return in the past three months. Therefore, I recommended the AIM Small Cap fund to hold FormFactor, inc.  I believe they are still a stock to watch, as they did have a negative return for six months.  

Source: FactSet


 

A Small Cap Equity holding: LHC Group, Inc. (LHCG, $165.59): “Adding to the Group” By: Ryan Witt, AIM Student at Marquette University

 LHC Group, Inc. (LHCG, $165.59): “Adding to the Group”

By: Ryan Witt, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • LHC Group, Inc. (NYSE: LHCG) is a post-acute healthcare company that services patients through nursing agencies, hospices, and long term assisted care facilities. Currently, LHCG operates through three main segments: Home Health (71% of revenue), Hospice (12%), and Home & Community-Based Services (9%).
  • LHCG has surpassed its original target price of $121.64 and has returned the small cap fund 78.86% since its inception in November of 2018.
  • LHCG has seen its EPS decrease from 0.98 in FY19 to 0.75 in FY20. It is estimated to be reaching 1.39 for FY21.
  • Despite nursing homes and the assisted care facilities being hit extremely hard by Covid-19, sales stayed relatively stable decreasing by less than 1%. LHCG fell less than the industry.
  • Since the beginning of FY21 LHCG has made over 10 acquisitions of smaller hospice and healthcare services companies to expand their footprint across the US. This will add to LHCG’s already large home health locations of 537 and allow them to deal with more than 20 million combined patient encounters a year.

Key points: While the Covid-19 pandemic effected nursing homes and hospice facilities greatly, LHCG was able to stay away from substantial losses by only seeing revenue go down by less than 1%. LHCG saw a decrease in the number of patients due to the nature of the pandemic which has left them with fewer people in their facilities and using their services.

Currently LHCG is focusing on keeping its many patients healthy and away from Covid as many are at risk to it. It currently has treated about 26,000 of active patients and out of their hospice segment just above 700 ended up testing positive for Covid. They were able to have great control over the virus and limit spreading throughout its multiple facilities. While a portion of their patients were lost to covid, the 65+ population in the US is expected to double to 95 million by 2060.

Recently, LHCG has ten acquisitions for FY21 with three pending and three just completed on Aug 1st, those being MSA hospice, Ashley County Medical Center Home, and Cavalier Healthcare Services. The three of these together are expected to boost the bottom line by $8 million a year along with the boost from the other seven acquisitions as well. LHCG has earmarked $502 million of acquisitions for the year and about 71% of that is towards hospice services within different parts of the US. The most important acquisition to take note of is the Heart of Hospice acquisition that LHGC made which adds 16 hospice locations to the company’s large footprint of locations already. It is expected that this acquisition will bring in about $92 million of annualized revenue for LHCG.

The reason for the fall in price was primarily due to LHCG operating in a very competitive industry with many peers and it fell about 12% since earnings were released in early August. However, when compared to the industry which fell about 38% they did a lot better than one might expect. They are an industry leader and have considerable market share of about 11% within the home healthcare space. Even though it is a highly competitive market no one company is much bigger than LHCG. Many of the companies in the home care market look to rebound after Covid caused such a disruption to the industry.

While the stock price has dipped in the past year, LHCG did beat earnings revenue estimates. A portion of the decrease in price was primarily due to the pandemic, but as well the decrease in operating income which was also largely due to the efforts of dealing with the pandemic. Home health and hospice should be expected to recover as we move into the end of FY21 and into FY22.

What has the stock done lately?

As of recent, LHCG has experienced a dramatic stock price fall from when it was initially at 216.60 on July, 30th of the year. Since the beginning of the year the stock price has fallen 22.37%. Since the beginning of September, the stock has fallen over $20 after hovering around the $180 mark. LHCG experienced about a 12% decrease from August 4th to 5th following the earnings release for the second quarter. Additionally, the stock price has not been able to get back to above $210 since April of this year.

Past Year Performance: LHCG has decreased by 19.12% over the past year compared to the Russell 2000 which has increased 51.29% over the past year. Recent contractions in its operating margin and the home healthcare market being hit hard by the pandemic has led to such a price decrease. The 52-week average for LHCG has been $165.59-$236.81. Currently, LHCG is trading at the 52-week low at $165.59.

Source: FactSet

My Takeaway

LHCG has experienced a tough past couple of months in which saw the stock price dip drastically. The home health market has been very shaky especially as we move on through the pandemic. LHCG continues to expand and boost its revenues through M & A deals with a focus primarily on hospice. Many of their facilities will see a decrease in the number of patients now due to deaths during the pandemic, but luckily the population is expected to continue to grow into the future and the need for later in life services will become more important. An important thing to not is that the industry as a whole fell further then LHCG. For these reasons my recommendation is that LHCG is a hold, and it is my belief that it will get past this hurdle that the pandemic had created.

Source: FactSet


 

An International Equity holding: Unilever PLC (UL, $54.96): “Pull the (Uni)lever, Kronk!” By: Quinn McDaniel, AIM Student at Marquette University

Unilever PLC (UL, $54.96): “Pull the (Uni)lever, Kronk!”

By: Quinn McDaniel, AIM Student at Marquette University

 


Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

  • Unilever PLC (NYSE: UL) is one of the world’s largest consumer goods companies with over 400 brand names in over 190 countries. Headquartered in London, UL operates through segments such as Beauty and Personal Care (42% of FY20 revenue), Foods and Refreshment (38%), and Home Care (21%).
  • With 14 of the top 50 consumer goods brands, UL owns Breyers, Lipton, Axe, Dove, Comfort, Radiant and more.
  • Early in the year, UL decided to aim their focus on volume-led competitive growth and delivering underlying operating profit and free cash flow as the best means of value maximization.
  • The company is expected to see benefits from persistent at-home food and hygiene consumption this year and recovery in out-of-home channels as the pandemic dies down.
  • Challenges created by rising cost pressure are growing issues which have led UL to sub-par top line delivery over the past years.

Key points: Realizing that the economic toll from the pandemic is deep and will be long-lasting, management aims to prepare the company by focusing on competitive growth which is a key part of its overall 4G approach. This approach is about delivering consistent, competitive, profitable and responsible growth. Additionally, with a portfolio of on-trend, purpose-led brands, taking those brands to more places, more people and more quickly is crucial in planning for the company’s outlook in 2021.

In the first half of the year, Unilever reported a slight fall in pretax profit ($5.15B for the period, compared with $5.35B the pervious year) with expectations for full-year margins to stay flat due to rising costs. The company reported that profitability was negatively impacted by a little over 6% from currency-related items. Also, the continuation of restrictions on daily life are impacting UL’s channel dynamics, sales mix and consumer behavior.

UL continues to make progress on its strategic change agenda with an acquisition of Paula’s Choice, a cruelty-free skincare brand. UL sees this as a perfect addition to its Prestige portfolio with Paula’s strong presence in key growth markets and potential for further international expansion. The acquisition was completed in early August of 2021 with a reported price of around $2B.

Key competitors of Unilever include Mars, Johnson & Johnson, Nestle USA and Proctor & Gamble. With significant competition and changing shopper trends, winning share in each of UL’s portfolios or geographic segments poses a challenge for all players. UL’s business model focuses on building brands that the company believes consumers know, trust, like and buy in preference to those of competitors.

What has the stock done lately?

After experiencing significant declines in the beginning of March and then rebounding in July, UL’s stock price has delivered a -5.28% return since the beginning of this year and a -4.24% return in the past 4 months or so. With the stocks lowest price at about $52.06, it is currently trading around $55 after experiencing its high around $61 in May. Its one-year target is estimated to be about $64.

Past Year Performance: Unilever’s underlying performance this past year has shown -5.8% in operating margin and about -2.4% in earnings per share. Since the beginning of 2020, Unilever has underperformed the benchmark and shows consistency in this underperformance. While the benchmark return has risen, Unilever’s continues to fall.

Source: FactSet

My Takeaway

Unilever has been in the international portfolio since March of 2010 and I believe the stock has run its course. It is difficult to justify UL’s current stock price on its revenue growth and earnings. A problem I see with UL is that they have an abundance of brands and should start identifying and disposing of the weaker ones. With tough competition from companies like Nestle, it is easier these days to start new brands. Also, with inflation on the rise, this will have to be passed on to the consumers. Several valuation metrics show that UL may be undervalued which leads me to believe that this stock should be sold.

Source: FactSet