Two Promising Stocks To Consider – CNNE, MESA

Cannae Holdings, Inc.

CNNE Details

Cannae Holdings, Inc. (NYSE: CNNE) is a holding company that manages its investment portfolio by making majority and minority stock investments in other companies to strengthen its performance. As of June 30, 2021, the company's primary investments included minority investments in Dun & Bradstreet Holdings, Inc. (D&B), Ceridian HCM Holdings, Inc. (Ceridian), Paysafe Limited (Paysafe), Alight, Inc. (Alight), Optimal Blue Holdco, LLC (Optimal Blue), AmeriLife Group, LLC (AmeriLife), and QOMPLX, Inc. (QOMPLX).  CNNE also has a controlling stake in O'Charley's Holdings, LLC (O'Charley's) and 99 Restaurants Holdings, LLC (99 Restaurants) and additional stock and debt investments. These include variable interests in certain unconsolidated affiliates such as Foley Trasimene Acquisition Corp. (FTAC), Trebia, Austerlitz I and Austerlitz II. 

Strategic investment in Sightline Payments: CNNE stated on August 17, 2021, that it had invested USD 240 million in Sightline Payments (Sightline), a leading digital payments provider and mobile app developer, and had led another USD 270 million funding round in Sightline. This investment follows CNNE's USD 32 million earlier investment in 2021 and puts Sightline's post-money worth at over USD 1 billion.

H1FY21 Results: The company reported a sharp uptick of 35.81% in total operating revenue to USD 374.3 million during H1FY21 (ended June 30, 2021) compared to USD 275.6 million during H1FY20, primarily due to an increase in overall store sales driven by recovery from the COVID-19 pandemic and reconsolidation of Legendary Baking and VIBSQ business entities. However, CNNE reported net losses of USD 56.1 million during H1FY21 compared to a profit of USD 1.10 billion during H1FY20. As of June 30, 2020, the company stood with cash and cash equivalents of USD 271.2 million, with total debt (notes payable) of USD 51.50 million.

Invested Capital (USD Million, Source: Quarterly Update, Q2FY21)

Key Risks: Any investment firm's most valuable assets are its investing professionals and management teams. As a result, any key personnel of the distribution or management teams leaving the firm might significantly influence the company's operations. Furthermore, any changes in the compensation structure may generate unrest among the team, which will influence the company's long-term success.

Valuation Methodology: EV/Sales 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.

CNNE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CNNE's share price has fallen 20.43% in the past nine months and is currently leaning towards the lower end of the 52-week range of USD 29.51 to USD 46.57. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 52.71. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 39.38. Considering the growth prospects, significant track record, strong balance sheet, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 32.60, up 2.13% as of September 01, 2021, 11:40 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.

Mesa Air Group, Inc.

MESA Details

Mesa Air Group, Inc. (NASDAQ: MESA) is a holding company of Mesa Airlines, Inc. (Mesa Airlines), a regional air carrier based in Cincinnati/Northern Kentucky International Airport that offers cargo aircraft and scheduled flight services to 116 cities in 36 states. MESA operated a fleet of 155 aircraft with roughly 470 daily departures as of June 30, 2021, under the terms of capacity purchase agreements with American Eagles, United Express, and DHL Express. In addition, MESA makes revenue through contracts with key partners and pass-through revenue under purchase and flight services agreements.

Encouraging Operating Performance: On August 10, 2021, MESA reported a 92.1% YoY increase in block hours to 32,843 in July 2021 because of increased flying due to industry recovery from the COVID-19 pandemic.

Capacity Expansion to enhance efficiency: MESA, along with Breakthrough Energy Ventures (BEV) and United Airlines Ventures (UAV), announced on July 13, 2021, that it has invested in Heart Aerospace, a firm that intends to be the world's first electric nineteen-seat ES-19 aircraft manufacturer. MESA also aims to add 100 more ES-19 aircraft to its regional fleet, subject to assist in decarbonizing air travel. By 2026, Heart Aerospace expects to deploy the first ES-19 for commercial usage.

9MFY21 Results: The company reported a sharp decline of 14.70% in total operating revenues to USD 372.81 million during 9MFY21 (ended June 30, 2021) compared to USD 437.03 million during 9MFY20, primarily due to lower flight operations, temporary reduction in rates, and flying fewer aircraft under the American Capacity Purchase Agreement (CPA). However, MESA reported an increase in net income to USD 24.08 million during 9MFY21 vs. USD 16.09 million during 9MFY20. As of June 30, 2021, the company’s cash balance stood at USD 180.40 million, with total debt (including finance leases) of USD 693.49 million.

Key Risks: During 9MFY21, MESA's major customers, American Airlines and United Airlines, respectively, provided 46% and 52% of total revenue through capacity purchase agreements. However, excessive reliance on a small number of large clients for business might harm the company's financial stability in the long run. Furthermore, the company's aviation fleet has substantial debt and extensive long-term lease obligations, which may limit its ability to borrow further financing on favorable terms or at all.

Outlook:

Forward Guidance (Source: Q3FY21 Earnings Release, August 09, 2021)

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.

MESA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MESA stock fell 48.30% in the past 6 months and is currently in the lower-band of the 52-week range of USD 2.80 to USD 17.40. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 44.27. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 9.65. Considering the correction in the stock price, strategic growth initiatives, current trading levels, and associated risks, we recommend a “Speculative Buy” rating on the stock at the current price of USD 7.91, down 0.87% as of September 01, 2021, 2:38 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.