Organon & Co.

OGN Details

Organon & Co. (NYSE: OGN) operates as a multinational healthcare company focused on women's health issues and biosimilars business and was born out of a spinoff from Merck & Co., Inc. in June 2021. Its operating segments are 1) Women's Health, 2) Biosimilars, which are lower-cost alternatives to existing biologic medicines for treating life-threatening diseases, and 3) Established Brands, representing a broad portfolio of mature brands developed and launched by Merck across multiple therapeutic areas and geographies. OGN has a portfolio of over 60 treatments and products primarily related to reproductive health. It was listed on the NYSE on May 14, 2021, on a "when-issued" basis.

Commercializing Ebopiprant (OBE022): On July 27, 2021, the company signed an agreement with ObsEva, a biopharmaceutical company focused on women's reproductive health, under which ebopiprant (OBE022), an orally active, experimental, selective prostaglandin F2 (PGF2) receptor antagonist for the possible treatment of preterm labor by lowering inflammation and uterine contractions, will be licensed by OGN for production and commercialization.

Unsolicited Offer by TRC: On June 29, 2021, the company announced that TRC Capital Investment Corporation made an unsolicited mini-tender offer to OGN shareholders to acquire 3.0 million shares of OGN, representing a 1.18% stake in the company, at an offer price of USD 28.63 per share. OGN believes that this offer undervalues the company and recommended its shareholders not accept it.

Q2FY21 Results: OGN reported a slight 4.52% increase in its sales to USD 1.60 billion in Q2FY21 (ended June 30, 2021), compared to USD 1.53 billion generated in Q2FY20. However, its net income reduced to USD 427 million from USD 542 million reported in Q2FY20. As of June 30, 2021, the company's cash and cash equivalents were USD 730 million, and total debt amounted to USD 9.35 billion. Moreover, in its Q2FY21 release, OGN declared its inaugural dividend of USD 0.28 per common share, payable on September 13, 2021, to shareholders of record on August 23, 2021.

Key Risks: The manufacturing and marketing of OGN's products are subject to extensive regulation by federal and state governmental authorities across the globe. Hence, any suspensions/withdrawal of prior approvals if its products fail to comply with the regulatory requirements could negatively impact its business and financial condition. In addition, the company also faces continued pricing pressure globally from managed care organizations, government agencies and programs that could adversely affect its sales and profit margins.

Outlook: In FY21, OGN expects to generate revenue in the range of USD 6.1 – 6.4 billion, with a gross margin of low to mid 60% and an adjusted EBITDA margin ranging between 36% and 38%.

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.

OGN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: OGN's stock price increased 11.72% in the past three months and is currently at the mid-point of its 52-week range of USD 27.25 to USD 38.75. The stock is currently trading slightly above its 50 DMA level, and its RSI Index is at 48.88. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 35.50. Considering the slight uptick in the stock price, robust product portfolio, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 33.13, up 0.17% as of October 07, 2021, 12:18 PM ET.

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

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

Envela Corporation

ELA Details

Envela Corporation (NYSE: ELA), along with its subsidiaries, is engaged in a variety of recommerce-related businesses, such as recommercialization of luxury assets (jewelry, diamonds, fine watches, etc.), asset recycling, and IT asset management services, as well as providing services to industrial and commercial companies. Its subsidiaries are 1) DGSE, LLC, which specializes in recommercialization of hard luxury assets through the Dallas Gold & Silver Exchange, Charleston Gold & Diamond Exchange, and Bullion Express brands; and 2) ECHG, LLC, which refurbishes and resells consumer electronic components and IT equipment.

Achieving Inorganic Growth via Strategic Acquisition:  On August 17, 2021, ECHG signed an agreement to acquire Avail Recovery Solutions, LLC, an IT asset disposition and electronics recycling company, in an all-cash deal. This acquisition furthers ELA's strategy of increasing the shareholder wealth by achieving synergies via acquisitions and expanding the footprint in the environmentally friendly recommerce sector. The transaction is expected to close in Q4FY21.   

Q2FY21 Results: The company reported a YoY surge of 64.14% in revenue to USD 33.72 million in Q2FY21 (ended June 30, 2021) compared to USD 20.55 million in Q2FY20. The DGSE segment, which accounted for 68.24% of the total revenue in Q2FY21, reported YoY growth of 60.38%. Net income for Q2FY21 increased to USD 2.15 million from USD 0.57 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 8.13 million and total debt of USD 15.19 million.

Key Risks: As of December 31, 2020, N10TR, LLC and Eduro Holdings, LLC, entities controlled by the CEO of ELA, owned 47.7% and 23.7%, respectively, of its common stock, thus gaining substantial control over its operations, which constrains the ability of other shareholders to influence corporate decisions. Furthermore, ELA operates in a highly competitive industry and faces direct competition from more significant players with higher financial, marketing, and advertising resources at their disposal.

Outlook: As of Q2FY21, ELA expects to incur capital expenditures of ~USD 1.0 million in the NTM period to purchase equipment and properties for DGSE retail outlets.

Valuation Methodology: Price/Earnings 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.

ELA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ELA's share price has fallen 4.19% in the past month and is currently leaning towards the lower band of the 52-week range of USD 3.60 to USD 7.42. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 49.02. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 4.70.  Considering the slight correction in the stock price, a surge in top and bottom-line, recent acquisitions, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 4.12, up 0.49% as of October 07, 2021, 11.07 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.