Research – DLH Holdings Corp (DLHC): Well Positioned to Capitalize on Government Services Trends

Friday, December 13, 2019


DLH Holdings Corp. (DLHC)

Well Positioned to Capitalize on Government Services Trends

DLH Holdings Corp is a provider of technology-enabled business process outsourcing and program management solutions in the United States. The company offers services to several government agencies which include the Department of veteran affairs, Department of health and human services, Department of Defense and other government agencies. It operates primarily through prime contracts and also derives its revenue from agencies of the federal government, primarily as a prime contractor but also as a subcontractor to other Federal prime contractors.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Well Positioned. With the S3 acquisition, DLH is well positioned to compete on an increasing opportunity set, in our view. DLH’s expanded core competencies dovetail nicely with key trends in the government services market, especially in DLH’s core agencies such as the Department of Veterans Affairs, Department of Health and Human Services, and public health and life sciences agencies.

Favorable End Markets. The recent Budget deal, if enacted, increases funding to DLH’s core end markets: the VA by 9.6%, DoD by 5%, and HHS by 4.4%, with even higher increases at sub agencies. The increased spending should…



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Research – Energy Services of America (ESOA) – Solid Finish to Fiscal Year 2019 and Special Dividend Announced

Friday, December 13, 2019

Energy Services of America (ESOA)

Solid Finish to Fiscal Year 2019 and Special Dividend Announced.

Energy Services of America Corporation is engaged in providing contracting services for energy-related companies. The company is primarily engaged in the construction, replacement, and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. It services the gas, petroleum, power, chemical and automotive industries, and does incidental work such as water and sewer projects. Energy Service’s other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for the price target, fundamental analysis, and rating.

Solid End to fiscal year with results above expectations. FY2019 EBITDA of $8.0 million was above our estimate of $6.6 million estimate due to lower costs that more than offset lower revenue. The completion of the Goff project had a slightLY negative impact, but margins were higher than expected; gross margin was 7.3% (+87 basis points) and EBITDA margin was 4.6% (+85 basis points). The current backlog of $63 million was up $8 million higher than 3Q2019.

Increasing FY2020 EBITDA to reflect positive finish to FY2019. Assuming no weather and/or operating miscues, we forecast that FY2020 EBITDA will move up to $8.6 million based on EBITDA margin of 5.6%, which is…




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Red-hot Biotech Stocks Boosting Small Cap Index

Red-hot Biotech Stocks Boosting Small Cap Indexes in Q4

(Note: companies that
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bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

Redhot Biotech
Stocks Boosting Small Cap Indexes in Q4

As of December 3, Russell 2000 Index (RUT, +7.3), which is a benchmark for small-cap stocks, is outperforming the S&P 500 (SP50, +5.2%) and Russell 3000 (RUA, +5.5%) benchmark indices in Q4 2019 (Exhibit 1). The Russell 2000 Index is a market-capitalization weighted index measuring the performance of approximately 2,000 small cap American companies in the Russell 3000 Index, which includes 3,000 largest cap U.S. stocks (adjusted annually).

Exhibit 1: Russell 2000 Relative Price
Performance, Q4 2019 (as of 12/3/2019)

Unsupported image type.

Source: CapitalIQ

The Russell 2000 index achieved a new 52-week high on November 27 (1,634.1).  The strong performance is primarily attributed to the strength in the biotechnology and financial sectors. Biotechnology is a major driver for recent gains. These sectors are heavily weighted in the Russell 2000 index with 26% for financials and 15% healthcare (Exhibit 2).

Exhibit 2: Sector
Weightings for The Russell 2000

 

Unsupported image type.

Source: New
York University Stern School of Business, FTSE Russell

Thus far, the data demonstrates a positive change in sentiment by biotechnology investors as the sector surged in Q4, in stern contrast with the relative underperformance seen in the first three quarters of 2019. Both NYSE Arca Biotechnology (BTK, 20.6%) and NASDAQ Biotechnology (NBI, +21.7%) indices have outperformed the S&P 500 (SP50, +5.2%) and Russell 3000 (RUA, +5.5%) indices by a significant margin in Q4 2019 (as of December 3, 2019) (Exhibit 3).

Exhibit 3: Biotechnology Relative Price
Performance Q4 2019 (as of 12/3/2019)

Unsupported image type.

Source: CapitalIQ

 

As the biotechnology sector soared and small-cap stocks outpaced the broader markets, picking the next gemstone in small/micro-cap biotechs could generate high cumulative returns for investors. 

Finding a Cure for AIDS Part II (Dec. 2019)

A Cure For HIV Infection, Promise or Reality?

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Anti-retroviral therapy (ART), or highly-active-antiretroviral therapy (HAART), is effective in halting the progression of HIV infection (a disease affecting nearly 40 million persons worldwide). However, HAART does not cure the disease as the HIV virus, despite of the treatment, remains hidden in the human body. In 2018, Gilead’s Genvoya and GlaxoSmithKline’s Triumeq, the two top selling ART drugs, had annual sales of $4.62 billion and $3.36 billion, respectively. Notwithstanding their commercial success, these medicines do not cure the disease. The HIV virus often remains hidden in the human body in reservoirs such as dendritic cells, macrophages, and CD4+ lymphocytes. Resistance to treatment, side effects of HAART, stigma, and the cumbersome need for lifelong therapy are all important issues highlighting the need for a cure. If a patient interrupts antiretroviral therapy, the viral infection comes back. Since HIV was first detected in 1983, the medical community have intensively searched for a cure for this disease.

 

The Story of the Berlin
Patient

In 2007, Timothy Ray Brown, an American studying in Berlin, Germany, was treated with a hematopoietic stem cell transplant. Two years earlier, Mr. Brown had been diagnosed with a type of blood cancer known as acute myeloid leukemia (AML). Besides its cancer diagnosis, Timothy was infected with the Human Immunodeficiency Virus (HIV). Dr. Gero Hütter, a German doctor from the Charité Hospital, Berlin University of Medicine, performed the transplant. Before seeing Timothy, Dr. Hütter had never treated an HIV patient, but he had learned about a rare genetic mutation causing natural resistance to HIV infection. Based on this information, Dr. Hütter found a stem-cell donor carrying this specific mutation. He performed the transplant on Mr. Brown using these mutated cells.

 

The procedure resulted in a surprising outcome. Timothy’s HIV infection disappeared after the transplant. The HIV virus could not be detected on his blood, not even with the most sensitive diagnostic techniques such as polymerase chain reaction (PCR) methods. Timothy Ray Brown was cured of his HIV infection. He became famous in the medical community. Timothy is now known as the Berlin patient. The story of the Berlin patient triggered significant interest in both academy and industry, setting off a gold rush to find a sterilizing cure for HIV infection. Timothy’s transplant treatment was done from a donor carrying a mutation in a gene known as CCR5, which happens to be the site of entry utilized by HIV virus to infect immune system cells (New England Journal of Medicine 2009, 360, 692-698). The CCR5 protein receptor is expressed on the surface of lymphocytes T, which are the primary cells targeted by HIV virus. Two cell receptors, CD4+ and CCR5, are utilized by HIV to enter the cell. The virus cannot enter and infect cells with a defective CCR5 receptor.

As a result of CCR5 mutation (no site of entry), HIV cannot find a home, the patient’s viral load gradually decreases, and eventually the virus fizzles out. This is probably what transpired during Mr. Brown’ treatment procedure. The virus became undetectable in Timothy’s body. He stopped taking any medication for HIV, although he continued to undergo treatment for his blood cancer. Timothy has remained HIV negative for 12 years now. He has been cured from his HIV infection.

Research – DLH (DLHC): Another Solid Quarter with Revenue Topping Expectations

Thursday, December 12, 2019

DLH Holdings Corp. (DLHC)

Another Solid Quarter with Revenue Topping Expectations

DLH Holdings Corp is a provider of technology-enabled business process outsourcing and program management solutions in the United States. The company offers services to several government agencies which include the Department of veteran affairs, Department of health and human services, Department of Defense and other government agencies. It operates primarily through prime contracts and also derives its revenue from agencies of the federal government, primarily as a prime contractor but also as a subcontractor to other Federal prime contractors.

Joe Gomes, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

4Q19 Results. Fourth quarter revenue came in at $54.2 million and diluted EPS was $0.12. We were at $51.3 million and $0.13, respectively. The quarterly revenue exceeded management’s preliminary October expectation. Full year revenue totaled $160.4 million and diluted EPS was $0.41. Excluding transaction-related expenses, non-GAAP EPS was $0.49 for FY2019.

Organic Growth A Positive. As expected, the majority of the year-over-year revenue growth was driven by the S3 acquisition, but DLH also delivered organic growth of approximately…



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Research – Energy Services of America (ESOA) – Launching Coverage. Looking for Solid Finish to Fiscal Year.

Wednesday, December 11, 2019

Energy Services of America (ESOA)

Launching Coverage. Looking for Solid Finish to Fiscal Year.

Energy Services of America Corporation is engaged in providing contracting services for energy-related companies. The company is primarily engaged in the construction, replacement, and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. It services the gas, petroleum, power, chemical and automotive industries, and does incidental work such as water and sewer projects. Energy Service’s other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Launching coverage on Energy Services of America (ESOA),  a small cap idea in the construction services industry with an energy focus. ESOA helps energy and utility companies build out and maintain distribution networks.

End to FY2019 should be solid.  After two uneven years and delays on a large project, we expect FY2019 to finish on a solid note. Our EBITDA estimate of $6.6 million compares to $8.1 million in FY2018 and $3.6 million in FY 2017. FY2020 operating results poised to rebound. While the outlook for overall infrastructure activity is more muted versus the past five years due to lower energy prices, the risk profile has improved with less large projects. Assuming there are no weather and/or…




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Research – Salem Media (SALM) – Why The Dividend Cut Should Help The Stock

Wednesday, December 11, 2019

Salem Media (SALM)

Why The Dividend Cut Should Help The Stock

Salem Media Group is America’s leading radio broadcaster, Internet content provider, and magazine and book publisher targeting audiences interested in Christian and family-themed content and conservative values. In addition to its radio properties, Salem owns Salem Radio Network, which syndicates talk, news and music programming to approximately 2700 affiliates; Salem Radio Representatives, a national radio advertising sales force; Salem Web Network, a leading Internet provider of Christian content and online streaming; and Salem Publishing, a leading publisher of Christian themed magazines. Salem owns and operates 115 radio stations, with 73 stations in the nation’s top 25 top markets – and 25 in the top 10. Each of our radio properties has a full portfolio of broadcast and digital marketing opportunities.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

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Declares $0.025 dividend.  In a move that was anticipated, the board announced that it cut the dividend by over 60% from $0.065 to $0.025. On an annualized basis, the dividend would be $0.10 and offer an attractive current yield of 6.7%.

The market anticipated a cut. The shares have slid 50% from March 2019 highs to near current levels and offered a 17% annualized dividend yield based on…



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Does Santa’s Early Arrival Mean Retailers will have a Merry Christmas?

Does Santa’s Early Arrival Mean Retailers will have a Merry Christmas?

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

The National Retail Federation said that a record number of U.S. consumers spent more online and in stores over the five days between Thanksgiving and Cyber Monday than last year.  An NRF survey found 190 million people (up 14%) made purchases spending an average of $361.90 (up 16%).  Eighty-six percent of consumers had begun their shopping versus 77% last year at this time.  The increase in spending is well ahead of early NRF estimates for a 3.8-4.2% increase for the holiday season.  Does the strong start to holiday shopping mean a merry Christmas for the retail sector?  Or can the strong start be explained by other factors?

Research – Coeur Mining (CDE): Increasing 2020 Estimates; Maintaining Outperform Rating

Tuesday, December 10, 2019

Coeur Mining (CDE)

Increasing 2020 Estimates; Maintaining Outperform Rating

Coeur Mining Inc is a metals producer focused on mining precious minerals in the Americas. It is involved in the discovery and mining of gold and silver and generates the vast majority of revenue from the sale of these precious metals. The operating mines of the company are Palmarejo, Rochester, Wharf, and Kensington. Its projects are located in the United States, Canada and Mexico, and North America.

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

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Increasing 2020 estimates. We are increasing our 2020 EPS and EBITDA estimates to $0.13 and $265.8 million from $0.10 and $256.2 million, respectively. The drivers are modestly higher production and lower operating costs. We expect additional gains in productivity at Silvertip and cost improvement at Rochester due to the deployment of the high-pressure grinding roll technology.

Well-positioned going into 2020. Third-quarter performance was much improved relative to the prior-year period and second quarter of 2019 due to higher average gold and silver prices and strong mine operating performance from Rochester and Wharf, along with continued improvement at Silvertip. Additionally, the company has significantly reduced debt, increased its cash position and…



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Research – 1-800-Flowers.com (FLWS): Flowers At A Discount

Tuesday, December 10, 2019

1-800-Flowers.com (FLWS)

Flowers At A Discount

1-800-FLOWERS.COM, Inc. is the leading provider of gourmet and floral gifts for all occasions. For nearly 40 years, 1-800-FLOWERS® has been helping deliver smiles for customers with gifts for every occasion, including fresh flowers, premium, gift-quality fruits and other gourmet items from Harry & David®, popcorn and specialty treats from The Popcorn Factory®; cookies and baked gifts from Cheryl’s®; premium chocolates and confections from Fannie May®; gift baskets and towers from 1-800-Baskets.com®; premium English muffins and other breakfast treats from Wolferman’s; carved fresh fruit arrangements from FruitBouquets.com; and top quality steaks and chops from Stock Yards®. The Company’s BloomNet® international floral wire service provides a broad range of quality products and value-added services designed to help professional florists grow their businesses profitably.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

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Notes from a recent Midwest marketing trip. This report highlights notes from investor meetings in the Midwest with William Shea, Treasurer and CFO, and Joe Pititto, Sr. VP of Investor Relations and Corporate Communications.

Giving some gains back? Investors seem to try to grapple with the recent 39% pullback in the shares from an April high. The pullback follows an 86% increase in the shares from December 2018 to…




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Research – Akazoo (SONG): Music To Our Ears

Tuesday December 10, 2019

Akazoo (SONG)

Music To Our Ears

Akazoo is a global, on-demand music and audio streaming and media and AI technology company, founded 2010, with a focus on emerging markets and a presence in 25 countries. Akazoo’s premium service provides subscribers with unlimited online and offline high-quality music streaming access to a catalogue of over 45 million songs on an ad-free basis. Akazoo uses patented AI for music recommendations and offers online and offline listening. Akazoo’s free, ad-supported radio service consists of over 80,000 stations and exists as a separate services and application. As consumers across the globe continue to shift their media consumption to mobile devices, Akazoo is equipped with a world-class mobile application and user experience which works seamlessly across a multitude of mobile devices and provides a high-quality user experience across a range of mobile networks from 2g to 4g LTE and soon 5g.

Michael Kupinski, DOR, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to full report for price target, fundamental analysis and rating.

Q3 better than expected. Revenues increased 24.4% to €34.9 million versus our €34.3 million estimate. Adjusted EBITDA of €2.95 million was better than our €2.63 million estimate.

Subscriber growth, better than expected. Premium subscribers of 5.5 million, up 28% year over year, were better than our 5.3 million estimate, with solid growth in Eastern Europe and some Latin countries. Last quarter, Asian countries drove results, which illustrates the company’s dynamic and…



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Research – Great Lakes Dredge & Dock (GLDD): Renewed Confidence in Dredging Market Outlook

Tuesday, December 10, 2019

Great Lakes Dredge & Dock (GLDD)

Renewed Confidence in Dredging Market Outlook

Great Lakes Dredge & Dock is a marine and environmental infrastructure contractor, and the largest dredging company in the United States. Headquartered in suburban Chicago, the company provides port expansion and maintenance, coastal restoration, river dredging and environmental restoration for public and private entities worldwide. In June 2019, the Environmental & industrial (E&I) business was sold for $17.5 million in cash and the company is now pure play on the dredging market.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

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Confidence renewed after investor meetings with the CEO and CFO. 1) Favorable dredging outlook due to funding expansion more than offsets below average win rate and added competition; 2) LNG and wind projects are positives and potential for new awards, including Corpus Christi on/about December 16th, is high; 3) Restructuring impact is durable. Sale of Environmental & Industrial business removed an underperformer; 4) Capital allocation is growth oriented and free cash flow should fund new build(s) in 2020-1; and 5) Improved financials accelerates refinancing of existing debt at first call date in May 2020.

Is insider buying last week a good signal? We think so. Privet Fund, controlled by board member Ryan Levenson, bought a total of 100k shares last week at an average price of $10.61/share and shares owned by Privet increased by more than 50% to 290k shares. While it is always difficult to pinpoint the exact reasons, we interpret the…



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Should Online Retailers Open Neighborhood Shops?

Should Online Retailers Open Neighborhood Shops?

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E-commerce shopping has experienced a steady increase in customer count and online sales each year since before the turn of the millennium. All U.S. Retail sales now add to $5.4 trillion in economic activity. Currently, 11.2% of these sales are from online purchases. Despite digital retailers being able to attract more sales each year, there is a growing trend from “clicks to bricks.” Stores that have historically existed only as cyber shops are now appearing on Main Street, complete with signage, stock clerks, and in most cases, cashiers. Internet retail is still a disruptive technology, does it make sense for successful online stores to also develop a presence as a more traditional retail outlet?