Sharps Compliance Corp.

SMED Details

Sharps Compliance Corp. (NASDAQ: SMED) is a nationally recognized healthcare waste management company specializing in regulated waste streams such as medical, pharmaceutical, and hazardous waste. SMED's services make it easier for clients in various healthcare-related industries to collect, transport, and handle regulated waste safely and responsibly. In addition, the company offers mailbacks, route-based collecting services, unused medication disposal, third-party treatments, and other ancillary services. SMED's flagship products, the Sharps Recovery System and the MedSafe Medication Disposal System, account for more than half of the company's revenues.

Issuance of Public Offerings: SMED announced the closing of its previously announced underwritten public offering of 2,070,000 shares of its common stock at a public offering price of USD 8.65 per share on August 30, 2021, which included the underwriter exercising in full its option to purchase an additional 270,000 shares to cover over-allotments. As a result, the company received around USD 17.0 million in net proceeds after paying the underwriting discount.

Robust FY21 Results: The company reported a sharp uptick of 49.42% in revenues to USD 76.42 million in FY21 (ended June 30, 2021) compared to USD 51.15 million in FY20, driven by an increase in billings in the Retail, Professional, Long-Term Care and Pharmaceutical Manufacturer markets. As a result, SMED witnessed a significant increase in net income to USD 12.87 million in FY21 vs. USD 2.27 million in FY20. As of June 30, 2021, its cash and cash equivalents were USD 27.77 million, with a total debt of USD 4.97 million.

Revenue Mix (Source: Investor Overview, August 2021)

Key Risks: SMED's top two clients contributed about 45% and 35% of its total revenue and 36% and 44% of the total accounts receivables in FY21 and FY20, respectively. Such a disproportionate reliance on a small number of significant clients might jeopardize the company's financial operations and cash flow.

Outlook: SMED anticipates growth in the long-term care, home healthcare, and professional markets, as well as a strong flu vaccine season, perhaps followed by COVID-19 vaccination efforts.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SMED Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SMED's share price declined by 43.05% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 5.45 to USD 18.67. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 24.00. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 9.42. Considering the significant correction in stock price, robust ROE, high-profit margins, low leverage, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 7.53, down 1.70% as of October 06, 2021, 10:41 AM ET.

*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.