Emergent BioSolutions, Inc.

EBS Details

Emergent BioSolutions, Inc. (NYSE: EBS) is a global life sciences company that offers public health products to a civilian and military population that address accidental and naturally occurring public health threats (PHTs). EBS generates revenues from the following product lines: 1) Vaccines such as Anthrax (AV7909), Smallpox (ACAM2000), Typhoid (Vivotif), and Cholera (Vaxchora). 2) Devices like Nasal Spray (NARCAN), Reactive Skin Decontamination Lotion Kit (RSDL), and auto-injector drug-device (Trobigard). 3) Therapeutics like raxibacumab, Anthrasil, Botulism Antitoxin Heptavalent (BAT), and VIGIV. The company also generates revenue by providing contract development and manufacturing services (CDMO) through collaboration with other pharmaceutical companies and the U.S. government. As of June 23, 2021, the company’s market capitalization stood at USD 3.15 billion.

Key Product Pipeline (Source: Conference Presentation, June 16, 2021)

Lawsuit filed against EBS: On June 03, 2021, Entwistle & Cappucci LLP (E&C) declared that it had filed a security class action lawsuit on behalf of investors who purchased the EBS common stock from April 24, 2020, through April 16, 2021. The action arises from the EBS quality control problems at its COVID-19 vaccine manufacturing facility in Baltimore, Maryland, culminating in the destruction of up to 100 million COVID-19 Johnson & Johnson and AstraZeneca vaccine doses. EBS allegedly admitted to the USFDA regarding its quality control flaws but not the investing public. EBS's share price declined significantly when the news became public and eroded almost USD 1.5 billion of its market cap.

Q1FY21 Results: The company reported a massive increase of 78.18% in its total revenues to USD 343 million in Q1FY21 (ending March 31, 2021) compared to USD 192.50 million in Q1FY20 (ending March 31, 2020), primarily due to an increase in revenues through CDMO services. In addition, the company reported a net income of USD 69.70 million in Q1FY21 compared to the loss incurred of USD 12.50 million in Q1FY20. As of March 31, 2021, the company stood at the cash and cash equivalents of USD 547.80 million with a total debt of 859 million.

Key Risks: EBS derives a significant portion of its revenues from the sales of ACAM2000 and Anthrax Vaccines under contracts with the U.S. Government (USG). The USG accounted for approximately 64%, 61%, and 76% of the total revenues during FY20, FY19, and FY18, respectively. Excessive dependence on a single customer for sales could hurt the company’s financial health. The recently filed class-action lawsuit also comprises a legal risk.

Outlook:

FY21 Guidance (Source: Earnings Release, Q1FY21)

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

EBS Daily Technical Chart

Stock Recommendation: EBS’ share price has declined by 41.25% in the past nine months and is currently trading at a lower-band of the 52-week range of USD 55.07 to USD 137.61. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 44.06. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 71.15. On the technical chart, the next support level is USD 50.50. Considering the company’s robust track record, strong balance sheet, market dominance in PHT space, current valuation, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 60.05, up by 2.04% as of June 23, 2021.

*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. 

Strattec Security Corp.

STRT Details

Strattec Security Corp. (NASDAQ: STRT) provides designing, developing, manufacturing, and marketing of automotive door handles and exterior trim, electronic keys and locksets, passive entry passive start system (PEPS), latches, driver controls, and other related products to its North American automotive customers. STRT also has a strategic relationship with WITTE Automotive (Velbert, Germany) and ADAC Automotive (Grand Rapids, Michigan), under which STRATTEC, WITTE, and ADAC sell the products of each company to worldwide businesses under the “VAST” trademark. STRT’s top customers are General Motor Company, Fiat Chrysler Automobiles, and Ford Motor Company. As of June 23, 2021, the company’s market capitalization stood at USD 175.68 million.

Sales distribution (Source: Company Presentation, March 25, 2021)

Q3FY21 Results: The company reported a 4.02% surge in net sales to USD 121.64 million in Q3FY21 (ending March 28, 2021) compared to USD 116.93 million in Q3FY20 (ending March 29, 2020). The increase in total revenue is attributable to an increase in orders from all major customers. STRT’s net income increased by 20.29% in Q3FY21 to USD 5.91 million compared to USD 4.91 million in Q3FY20. The auto parts manufacturer has significantly decreased its outstanding borrowing to USD 16 million on March 28, 2021, from USD 35 million on June 28, 2020. The company utilized USD 136.40 million to buy back 3,655,322 shares during the quarter.

Key Risks: The company generated 62% and 60% of its total sales from three customers i.e. General Motor Company, Fiat Chrysler Automobiles, and Ford Motor Company during the FY20 and FY19, respectively. Undue reliance on certain customers for business could hurt the company’s financial health. Further, high-grade zinc, brass, nickel silver, aluminum, steel, and plastic resins are the company's primary raw materials. The firm has only one supplier for each raw material, putting it at risk of vendor concentration.

Outlook: STRT expects its total capital expenditure for FY21 to be approximately USD 10 million, out of which USD 6.40 million had been spent through March 28, 2021 for new product programs and upgradation and replacement of obsolete equipment. 

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.

STRT Daily Technical Chart 

Stock Recommendation: STRT’s share price has declined 13.03% in the past six months and is currently trading in the mid-band of the 52-week range of USD 15.03 to USD 67.28. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 39.04. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 54.22. On the technical chart, the next support level is USD 38.20. Considering the significant correction in the stock price in the past six months, continuous decline in outstanding debt, and robust track record, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 45.75, up by 1.22% as of June 23, 2021.

* 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.

*All forecasted figures and Industry Information have been taken from REFINITIV.

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