LSI Industries, Inc.

LYTS Details

LSI Industries, Inc. (NASDAQ: LYTS) is a manufacturer of non-residential lighting and display solutions. Its operating segments are 1) Lighting, which manufactures and assembles both conventional and LED light sources for outdoor and indoor lighting solutions and electronic circuit boards, assemblies, and sub-assemblies for retail and other commercial establishments; and 2) Display Solutions, which manufactures and sells digital visual image elements like interior branding, electrical and architectural signage, and other electrical board systems for commercial entities.

Achieving Inorganic Growth via Horizontal Acquisition: On May 24, 2021, LYTS announced the acquisition of privately-owned JSI Store Fixtures (JSI), a commercial lighting and graphics solution company operating in the US, from RFE Investment Partners for a cash consideration of USD 90 million. LYTS funded the transaction with a USD 100 million credit facility and cash in hand. The acquisition is anticipated to be accretive on an adjusted EPS basis immediately upon closing. In addition, it aims to consolidate LYTS's leadership within the grocery and convenience store space and provide an irrefutable proposition for its new and existing clients.

FY21 Results: The company reported YoY growth of 3.29% in total revenues to USD 315.61 million in FY21 (ended June 30, 2021) compared to USD 305.56 million in FY20. The Display Solution segment, representing 40.11% of the total revenue in FY21, improved by 27.4% YoY, whereas the Lighting segment registered a YoY decline of 8.3%. Net income for the company reduced to USD 5.87 million in FY21 vs. USD 9.59 million in FY20. LYTS recorded a decrease in free cash flow to USD 25.78 million in FY21 from USD 47.12 million in FY20. As of June 30, 2021, the company had a cash balance of USD 2.28 million and long-term debt of USD 68.18 million.

Key Risks: The petroleum/convenience store market accounted for 36% of LYTS' revenue in FY20. As a result, any unfavorable changes in the economic environment of these markets could significantly affect its financial performance. In addition, LYTS operates in a highly competitive electrical equipment industry and faces aggressive price competition from its foreign competitors, which could cause pricing pressure for the company. Should this trend continue, it could harm the financials of the company.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

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

LYTS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LYTS’ share price has declined by 3.25% in the past three months and is currently trading in the lower-band of the 52-week range of USD 6.17 to USD 11.22. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 59.79. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 8.48. Considering the slight correction in the stock price, company's market dominance in the US, strategic acquisition, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 7.75, up 6.90% as of August 19, 2021, 11:42 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Sharps Compliance Corp.

SMED Details

Sharps Compliance Corp. (NASDAQ: SMED) is a major national healthcare waste management company specializing in medical, pharmaceutical, and hazardous waste treatment activities. Mailbacks, route-based collection services, unused medicine disposal, third-party treatment services, and other allied services are provided by the firm. Retail clinics, professional offices, home health care, pharmaceutical manufacturers, long-term care institutions, government agencies, and other markets use SMED's waste management services. The Sharps Recovery System and the MedSafe Medication Disposal System are SMED's core products, accounting for more than half of the company's sales.

Development of Route-Based Services: On March 02, 2021, SMED stated that it expanded its direct route-based services to Arizona, Colorado, New Mexico, and Utah, bringing its total geographic presence to 37 states. The benefits of the expansion of route-based offering solutions are also reflected in the company's increased revenue in the past.

Increase in National Footprint (Source: Investor Overview, August 2021)

Robust FY21 Results: The company reported a sharp uptick of 49.4% 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 and professional markets. 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 4.96 million.

Key Risks: In FY20 and FY19, SMED's top two customers accounted for roughly 35% and 27% of total revenue, respectively. Furthermore, in FY20 and FY19, two of its clients were responsible for 44% and 19% of the total accounts receivable balance, respectively. Such excessive reliance on a few key clients might harm the company's financial operations and cash flows.

Outlook: SMED forecasts growth in the long-term care, home healthcare, and professional markets, as well as a robust flu vaccine period, perhaps followed by COVID-19 immunization initiatives.

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 47.44 % in the past three 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 30.94. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 10.68. Considering the company's track record, expansion of route-based services, 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 8.72, down 4.49% as of August 19, 2021, at 11:48 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.

Orion Energy Systems, Inc.

OESX Details

Orion Energy Systems, Inc. (NASDAQ: OESX) serves commercial and industrial enterprises, as well as federal and municipal governments in North America by developing, manufacturing, and marketing lighting and energy management systems (EMS). OESX generates revenue from three segments, viz. 1) Orion Engineered Systems (OES) division, which develops and sells lighting products and provides construction and engineering services for commercial lighting and EMS, 2) Orion Distribution Services (ODS), which sells lighting equipment through manufacturer representative agencies and a network of electrical suppliers and contractors across North America, and 3) Orion US Markets Division (USM), selling commercial lighting and EMS to wholesalers and energy service businesses (ESCOs).

Enhancing Customer Value: OESX announced a USD 0.5 million investment in ndustrial.io, a supplier of software and services for optimizing industrial facilities across all stages of discrete and process manufacturing supply chains, on May 5, 2021. OESX acquired ownership in ndustrial.io through its participation in the USD 6 million ndustrial.io series A funding.

Robust Q1FY22 Results: The company reported a 224.68% YoY increase in total revenues to USD 35.10 million in Q1FY22 (ended June 30, 2021) compared to USD 10.81 million in Q1FY21, owing to the hold-off of multiple projects in the previous year due to the COVID-19 pandemic. As a result, OESX witnessed a significant increase in net income to USD 2.51 million in Q1FY22 vs. a net loss of USD 2.22 million in Q1FY21. As of June 30, 2021, its cash and cash equivalents were USD 15.86 million, with a total debt of USD 0.05 million.

Reliable Customer Base (Source: Investor Presentation, June 02, 2021)

Key Risks: OESX's top two customers accounted for 50.9% and 14.2% of the total revenue during Q1FY22. Excessive reliance on a few key clients might harm the company's financial operations and cash flows. Moreover, OESX's leading supplier accounted for 12.8% of the total cost of revenue during the quarter. The top three suppliers accounted for 16.1%, 12.5%, and 10.0% of the total cost of revenue in Q1FY21. The failure of a significant supplier can affect the timely supply of components for its products, thus hurting its operating performance and cash flows.

Outlook: OESX estimates sales to be between USD 150 and USD 155 million in FY22, up 28% from FY21. The company's strategy is backed by a rising pool of possibilities across the board, with strength from logistics clients, global online and national retailers, and other associated areas.

Valuation Methodology: Price/Earnings per share 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.

OESX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: OESX's share price declined by 55.61% in the past six months and is currently leaning towards the lower end of the 52-week range of USD 4.27 to USD 11.98. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 29.07. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 5.25. Considering the decline in the stock price in the past six months, strategic expansion initiatives, strong profitability, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 4.27, down 3.39% as of August 19, 2021, 3:10 PM 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.