Sharps Compliance Corp.

SMED Details

The company (NYSE: SMED) is a leading national health waste management provider specializing in regulated waste streams, pharmaceutical and hazardous. It offers comprehensive solutions for the management of regulated medical waste, hazardous waste, and unused medications.

Latest News:

• On 12 January 2022, the company has announced that it will release its Q2 2022 results before the opening of financial markets on 26^th January 2022 and webcast will follow at 11:00 AM.

• On 25 Oct 2021, the company has announced acquisition of Affordable Medical Waste, a full-service, route-based provider of medical waste solutions in Indiana and claimed a dedicated market opportunity for this segment of USD 1 billion in future.

Q1FY22 Results:

• Growing Revenue: The company’s revenue has increased by 5.8% to USD 13.91 million in Q1 2022 as compared to USD 13.15 million in Q1 2021. The Company yearly revenue has increased by 49.51% to USD 76.4 million against USD 51.1 million. Further company has posted a table showing growth of 18% 5-year CAGR.

Source: Company’s Presentation

• High Cash and Reducing Debt: The company’s cash has substantially increase by 48.75% to USD 41.16 million in Q1 2022 as compared to USD 27.67 million in Q4 2021. Also reducing its long-term debt to USD 3.23 million in Q1 2022 and USD 3.32 million Q4 2021 respectively.

• Lower Margins: Gross Margins of the company has come down to 24.6% in Q1 2022 against 27.5% in Q1 2021 also posted negative operating margins of 7.2% in Q1 2022 against 2.8% in Q1 2021.

Key Risks:

• Increased Cost resulting losses: The company might get impacted from increased cost of revenue and SG&A expenses, including some COVID restrictions that can further down its margins and put impact on revenue growth.

Outlook:

• The Company is currently servicing to 37 states and already begun to grow its infrastructure and route-based footprint to reach a larger portion in market. The company is sitting on high cash of USD 41.2 million and working capital of USD 44.3 million as of 30^th September 2021. Further company is seeing growth in unused medication offerings in fiscal year 2022.
  

Valuation Methodology: Enterprise Value/EBITDA Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

Technical Summary Analysis:

SMED Daily Technical Chart as on date 14 January 2022 (Source: REFINITIV)

Stock Recommendation:

SMED’s share price has substantially decreased by 49.58% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 18.66 to USD 6.61. The stock is currently trading below its 50 and above 200 DMA levels, and its RSI Index is at 37.40. We have valued the stock using the Enterprise Value to EBITDA based relative valuation methodology and arrived at a target price of USD 7.81 as on date January 14^th, 2022.

Considering the significant correction in the stock price, strong recurring revenue track record, strong cash position, associated risks, and current valuation, we recommend a “Spec Buy" rating on the stock at the closing price of USD 6.69 as on date January 14, 2022.

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

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

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.