SAN DIEGO, Oct. 16, 2023 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. [Nasdaq: KTOS], a Technology Company in the Defense, National Security and Global Markets, today announced a Memorandum of Understanding between Technical Directions, Inc. (TDI), a business unit within Kratos Unmanned Systems Division, and Boeing [NYSE: BA] for the TDI-J85 turbine engine to provide propulsion for the Powered Joint Direct Attack Munition (JDAM).
Boeing’s Powered JDAM combines a 500-pound ordnance, the conventional JDAM guidance kit, with a wing kit and a Kratos TDI-J85 engine to deliver high-end range at an affordable price. The cost savings is in part due to the low-cost turbine engine technology developed and enhanced by TDI over four decades. Powered JDAM will provide low-cost stand-off capability against land and maritime threats. Leveraging the JDAM family of weapons, it is designed to be produced at scale, exportable to any of the 35 JDAM partner nations, at a cost-point that enables affordable mass.
“We are proud that Boeing has selected our TDI-J85 engine for the Powered JDAM system. Incredible potential exists for this long-range, precision strike capability,” said Joseph Kovasity, Senior Vice President for TDI. “At Kratos TDI, we have been singularly focused on producing small, low-cost, military-grade turbine engines at quantity in the United States with U.S. suppliers and partners. With the Kratos acquisition of TDI, we have substantially invested in manufacturability for production scale resulting in an incredibly high engine performance-to-cost ratio, while ensuring we can meet the large quantity deliveries predicted for the Powered JDAM system and program.”
“Powered JDAM is the next step in the modular evolution of the JDAM and JDAM Extended Range family of weapons systems. Its ability to complement exquisite weapons system with low-cost stand-off capability will add new weapons capacity to the U.S. defense industrial base to support the current fight and deter future fights,” said Bob Ciesla, Vice President of Boeing Precision Engagement Systems.
The TDI-J85 straightforward architecture is capable of producing 200-lbf of net thrust at Sea-Level Static conditions. Specific Powered JDAM requirements are met with design adjustments achieving the desired thrust output at design point. The TDI-J85 is compatible with commercial and/or military kerosene-grade turbine fuels. The TDI-J85’s shaft-integral permanent magnet generator will produce up to 1.5 kW of AC power, from idle through maximum engine speeds, for P-JDAM’s onboard power requirements.
About Technical Directions Inc. TDI has developed and refined turbine engine technologies for military applications in Michigan since 1983—providing unique features in support of low-cost, expendable turbojet engine applications, such as miniature cruise missiles and other Unmanned Aerial Vehicles (UAVs). With the engineering, manufacturing, and system integration employees in the Oxford, Michigan facility, TDI’s subject matter experts have experience that encompasses all aspects of this turbine engine class, from clean-sheet design, through performance testing, vehicle integration, flight testing, and production manufacturing. TDI is a wholly owned subsidiary of Kratos Defense & Security Solutions. For more information, visit www.TDI-Engines.com.
About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a technology company that develops and fields transformative, affordable systems, products, and solutions for United States National Security, our allies, and global commercial enterprises. At Kratos, Affordability is a Technology, and Kratos is changing the way breakthrough technology is rapidly brought to market – at a low cost – with actual products, systems, and technologies rather than slide decks or renderings. Through proven commercial and venture capital-backed approaches, including proactive, internally funded research and streamlined development processes, Kratos is focused on being First to Market with our solutions well in advance of the competition. Kratos is the recognized Technology Disruptor in our core market areas, including Space and Satellite Communications, Cyber Security and Warfare, Unmanned Systems, Rocket and Hypersonic Systems, Next-Generation Jet Engines and Propulsion Systems, Microwave Electronics, C5ISR, and Virtual and Augmented Reality Training Systems. For more information, visit http://www.KratosDefense.com.
Notice Regarding Forward-Looking Statements Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made on the basis of the current beliefs, expectations, and assumptions of the management of Kratos and are subject to significant risks and uncertainty. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and Kratos undertakes no obligation to update or revise these statements, whether as a result of new information, future events, or otherwise. Although Kratos believes that the expectations reflected in these forward-looking statements are reasonable, these statements involve many risks and uncertainties that may cause actual results to differ materially from what may be expressed or implied in these forward-looking statements. For a further discussion of risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of Kratos in general, see the risk disclosures in the Annual Report on Form 10-K of Kratos for the year ended December 25, 2022, and in subsequent reports on Forms 10-Q and 8-K and other filings made with the SEC by Kratos.
Kratos Press Contact: Yolanda White 858-812-7302 Direct
Michael Kupinski, Director of Research, Noble Capital Markets, Inc.
Jacob Mutchler, Research Associate, Noble Capital Markets, Inc.
Refer to the bottom of the report for important disclosures
Overview: A new small-cap cycle?Small cap stocks have underperformed the large cap stocks for the past several years. Notably, there is a sizable valuation disparity between the two classes, one of the largest in over 20 years. Some of the small cap stocks we follow trade at a modest 2 times Enterprise Value to EBITDA, compared with large cap valuations as high as 13 to 15 times. Are we on a cusp of a small cap cycle?
Digital Media & Technology:Stocks Outperform – But Don’t Get Too Excited. Each of Noble’s Internet and Digital Media Indices, which are market cap weighted, outperformed the S&P 500 in the third quarter, but the double-digit gains from the previous quarter moderated significantly. Despite these relatively positive results, the prevailing theme within each sector was that the largest cap stocks performed the best, while smaller cap stocks across a variety of sectors struggled.
Television Broadcasting:Advertising Stabilizing?As we look toward the third quarter, local advertising appears to be weakening as the economy appears to be slowing. But, national appears to be improving. In addition, while it was assumed that Political would increase in the fourth quarter due to the run-off of the Republican presidential candidates, we believe that President Biden has recently stepped-up advertising in the third quarter, particularly in Hispanic communities.
Radio Broadcasting:Shoring up balance sheets.As many radio companies face a challenged revenue environment and at the same time invested in faster growth digital revenue, some companies have been caught carrying a substantial amount of debt. In this report, we highlight one company that was able to shore up its balance sheet through asset sales.
Publishing:Stocks outperform. It may be hard to imagine for some investors, but the Publishing stocks outperformed in both the latest quarter and for the trailing 12 months the S&P 500! But, there is still a wide valuation gap between most of Publishers and the shares of The New York Times, with the NYT shares at 15 times cash flow and the rest near 5.
Overview
The case for small caps
Small cap investors have gone through a rough period. For the past several years, investors have anticipated an economic downturn. With these concerns, investors turned toward “safe haven” large cap stocks, which typically have the ability to weather the economic headwinds and have enough trading volume should investors need to exit the position. Since 2018, small cap stocks have underperformed the general stock market, with annualized returns of just 3.7% as measured by the S&P 600 Small Cap Index versus the general market of 10.2% as measured by the S&P 500 Index. Another small cap index, the Russell 2000, increased a more modest 2.9% annually over the comparable period. The S&P 500 is larger cap, with the minimum market cap of $14.6 billion. The S&P 600 is smaller cap, a range of $850 million to $3.7 billion, with the Russell 2000 median market cap $950 million. Some of the even smaller cap stocks, those between $100 million to $850 million, have significantly underperformed the S&P 600. This is the first time that small caps underperformed a bullish period for all stocks since the 1940s. Notably, there is a sizable valuation disparity between the two classes, large and small cap, one of the largest in over 20 years.
Some of the small cap stocks we follow trade at a modest 2 times Enterprise Value to EBITDA, compared with large cap valuations as high as 13 to 15 times. By another measure, small cap stocks may be the only class trading below historic 25 year average to the median Enterprise Value to EBIT. Why the large valuation disparity? We believe that there is higher risk in the small cap stocks, especially given that some companies may not be cash flow positive, have capital needs, or have limited share float. But, investors seem to have thrown the baby out with the bathwater. While those small cap stocks are on the more speculative end of the scale, many small cap stocks are growing revenues and cash flow, have capable balance sheets, and/or are cash flow positive. For attractive emerging growth companies, the trading activity will resolve itself over time. Some market strategists suggest that small cap stocks trade at the most undervalued in the market, as much as a 30% to 40% discount to fair value.
Are we on a cusp of a small cap cycle? Some fund managers think so. Such a cycle could last 10 years or longer. In this report, we highlight a few of our small cap favorites in the Media sector, those include companies that have attractive growth characteristics, some with or without an improving economy, capable balance sheets, and limited capital needs. Our current favorites based on growth opportunity and stock valuation include: Direct Digital (DRCT), Entravision (EVC), E.W. Scripps (SSP), Gray Television (GTN), and Townsquare Media (TSQ).
After increasing by 8% in the second quarter of 2023, the S&P 500 was unable to hold onto those gains in the third quarter. The S&P Index decreased by 3.6% in the third quarter, a decline which we attribute to the market revising its interest rate expectations to one in which rates would remain “higher for longer”. Large cap stocks that weighed on the broad market index included tech stocks such as Apple (AAPL: -12%), Microsoft (MSFT: -7%) and Tesla (TSLA: -4%). Despite this small step backwards, the S&P 500 Index increased by 20% through the first nine months of the year.
Each of Noble’s Internet and Digital Media Indices, which are market cap weighted, outperformed the S&P 500 in the third quarter, but the double-digit gains from the previous quarter (2Q 2023) moderated significantly. Digital Media 3-Month Performance Sectors that outperformed the S&P 500’s 4% decrease include Noble’s Digital Media Index (+6%), Social Media Index (+4%), Gaming Index (+3%), Ad Tech Index (+1%) and MarTech Index (-3%). Despite these relatively positive results, the prevailing theme within each sector was that the largest cap stocks performed the best while smaller cap stocks across a variety of sectors struggled.
Figure #1 Digital Media 3-Month Performance
Source: Capital IQ
Perhaps more importantly, each of Noble’s Internet and Digital Media Indices have outperformed the S&P 500 over the latest twelve months as illustrated in Figure #2 Digital Versus S&P 500 LTM. The S&P 500 Index has increased by 20% over the last year (through 9/30/2023), which trailed the performance of the each of Noble’s Internet and Digital Media Indices, as shown in Figure #3 Digital Media LTM Performance.
Figure #2 Digital Versus S&P 500 LTM
Figure #3 Digital Media LTM Performance
Source: Capital IQ
Alphabet Powers Digital Media Index Higher Despite Broader-Based Sector Weakness
The best performing index during the quarter was the Noble’s Digital Media Index, but the sector’s “strong” performance is deceiving. Shares of Alphabet (a.k.a. Google: GOOGL) increased by 9% during the quarter, and the company size relative to its peers helps explain the vast majority of the sector’s performance. Google’s market cap is 8x larger than its next largest “peer” in Netflix, and it is 160 times that of the average market cap of its Digital Media peers. Google beat expectations across all metrics (revenue, EBITDA, free cash flow) and guided to improved profitability as it streamlines workflows. The company is also increasingly perceived as a beneficiary of AI. While Alphabet shares performed well, they mask the fact that shares of only 2 of the sector’s 12 stocks were up during the third quarter. The other Digital Media stock that performed well in the quarter was FUBO (FUBO), whose shares increased by 29% in 3Q 2023. Of the 10 other digital content providers in the sector, 7 of them posted double-digit stock price declines in the third quarter.
Large Cap Meta Powers the Social Media Index Higher
Shares in Meta Platforms (formerly Facebook) rose for the third straight quarter. Shares increased by 5% and were up 150% through the first nine months of the year. Meta shares increased by 8% at the start of the third quarter due to excitement around the launch of Threads, Meta’s answer to Twitter. Over 100 million people signed up for Threads within the first five days of its rollout and positions the company well for continued revenue growth once it begins to monetize this new opportunity.
As with the Digital Media Index, the Social Media Index masked underlying weakness across several smaller cap stocks. Of the 6 stocks in the Social Media Index, only Meta shares increased during the quarter. Several social media companies performed poorly during the quarter including Spark Networks (LOVL.Y: -59%), which filed to delist its shares, Nextdoor Holdings (KIND: -44%), which has struggled to reach profitability, and Snap (SNAP: -25%), which guided to revenue declines in 3Q 2023.
“No Love” For Small Cap Stocks
As was the case in the Digital Media and Social Media sectors, the same trends held true in the other sectors: in general, large cap stocks outperformed small cap stocks. For example, Noble’s Video Gaming Index increased by 3% in the third quarter, driven by Activision Blizzard (ATVI: +11%), and to a lesser extent SciPlay Corp (SCP: +16%). However, 7 other stocks in the video gaming sector posted stock price declines in the third quarter. Larger cap names such as EA Sports (EA: -7%) and Take-Two Interactive (TTWO: -5%) posted mid-single digit stock price declines while every small cap video gaming stock posted double digit declines.
Noble’s Ad Tech Index increased by 1% during the quarter driven by shares of AppLovin (APP: +55%), and Taboola (TBLA: +22%). However, just 7 of the sector’s 20 stocks were up for the quarter, and 10 stocks in the sector posted double digit declines. One of our favorites is an attractive growth, small cap company, Direct Digital. The DRCT shares declined 20% in the quarter, in spite of posting favorable Q2 revenue that beat expectations and raising full year revenue estimates. Direct Digital leads our list of favorites in the digital Ad Tech companies. As Figure #4 Ad Tech Comparables indicate, Direct Digital is among the cheapest in the industry trading at 4.7 Enterprise Value to our 2024 adj. EBITDA estimate, well below larger cap peers trading at multiples of 12, 13, or even much higher. Finally, Noble’s MarTech Index decreased by 3% (the only index that declined during the quarter), with the sector’s largest companies, Adobe (ADBE: +4%) and Shopify (SHOP: -16%) posting mixed results. Outside of these mega-cap stocks, the theme of underlying weakness prevailed: only 5 of the 20 stocks in the sector posted stock price increases, while one was flat and the other 14 were down. Eleven of the 20 stocks in the MarTech sector posted double digit stock price declines. One of our favorites in the sector, Harte Hanks performed well in the quarter up 18.8%. This was a welcomed bounce from the steep decline in the shares over the past 12 months, down 44%. The company stumbled on quarterly expectations. We believe that the sell-off was over done, providing a compelling opportunity for investors. As Figure #5 MarTech Comparables illustrates, the HHS shares trade at 3.8 times Enterprise Value to our 2024 adj. EBITDA estimate, a fraction of the multiples of many of its larger cap peers. We view the HHS shares as among our favorites in the sector.
Figure #4 Ad Tech Comparables
Source: Company filings & Eikon
Figure #5 MarTech Comparables
Source: Noble estimates & Company filings
Traditional Media
Virtually all traditional media stocks underperformed the general market in the past quarter and trailing 12 months, as illustrated in Figure #6 Traditional Media LTM Performance, save the Publishing group. In the latest quarter, Publishing stocks outperformed the general market, up 3.0% versus down 3.6% for the general market as measured by the S&P 500 Index. The average Publishing stock is up 6.9% over the past 12 months, with some of the larger cap publishing stocks up significantly more, over 20%. More details on the Publishing performance is in the Publishing section of this report. In the last quarter, the Radio stocks were the worse performing group, down on average 10.2%, As illustrated in Figure #7 Traditional Media 3-Month Performance. In addition, the Radio stocks were the worst performing group in the third quarter as well, down and average of 12.7% for the quarter.
Figure #6 Traditional Media LTM Performance
Source: Capital IQ
Figure #7 Traditional Media 3-Month Performance
Source: Capital IQ
Television Broadcasting
Have the TV stocks discounted too much?
We believe that the economic headwinds of rising interest rates and inflation have begun to hit local advertising. Local advertising had been relatively stable, favorably influenced by a resurgence of Auto advertising. Notably, local advertising fared much better than national advertising, which was down in the absence of Political advertising. As we look toward the fourth quarter, local advertising appears to be weakening. But, notably, national advertising appears to be doing much better, driven by an early influx of Political advertising. While it was assumed that Political would increase in the fourth quarter due to the run-off of the Republican presidential candidates, especially in early primary States, we believe that President Biden has recently stepped-up advertising, particularly to the Hispanic community. We have noticed Biden advertising even in Florida! So, what does this mean for media fundamentals?
It is difficult to predict where Political dollars will be spent and not all Political dollars will be spent evenly, geographically or by stations in a particular market. Furthermore, Political dollars may be pulled back in a market should a particular candidate pull ahead in the polls. Political dollars were anticipated to be spent in early primary States, specifically for the Republican candidates. But, the Biden money is a surprise. Biden appears to be spending early and in areas to solidify a key voting block, Hispanics. Of course, the Biden campaign may broaden its spending to other voting blocks as well. In our view, 2024 will be a banner year for Political advertising given the large amount of Political fundraising by the candidates and by Political Action Committees. The prospect of weak local advertising, however, may cast a pall over the current expected strong revenue growth in 2024. Many analysts, including myself, expected that economic prospects would improve in 2024, which would have provided a favorable tailwind for a significant improvement in total TV advertising in 2024. Certainly, it is likely that the Fed may lower interest rates in 2024, potentially providing a boost to local advertising prospects, but that improvement may come late in the year. But, overall, in spite of the weakening Local advertising environment, given the improving National advertising trends, overall TV advertising appears to have stabilized.
For now, we are cautiously optimistic about 2024, with the caveat that revenue growth may be somewhat tempered given the current weak local advertising trends. Nonetheless, we believe that we are nearing the trough for this economic cycle. Some companies, like E.W. Scripps, are in a favorable cycle for Retransmission renewals. Retransmission revenues now account for a hefty 50% of Scripps’ total broadcast revenue. In Scripps’ case, 75% of its subscribers are under renewal, which it recently announced was completed. As such, the company reaffirmed guidance that Retransmission revenue will increase 15% in 2024 and lead to a substantial increase in net Retransmission revenue. We remain constructive on TV stocks, as high margin Political advertising should boost balance sheets and improve stock valuations.
In the latest quarter, TV stocks underperformed the general market. As Figure #7 Traditional Media 3-Month Performanceillustrates, the Noble TV Index decreased 13.2%, underperforming the 3.6% decline in the general market as measured by the S&P 500. The poor performance of the latest quarter adversely affected the trailing 12 month performance, bringing the Noble TV Index to a 17.6% decline for the trailing 12 months. Individual stocks performed more poorly, with only the shares of Fox Corporation registering a modest gain for the trailing 12 months of 2.7%. The Noble TV Index is market cap weighted, and, as such, Fox with a $15 billion market cap, carried the index. Outside of the relatively strong performance of this large cap stock, all of the TV stocks were down and down big, between 18% to 59% over the past 12 months.
We believe that investors have shied away from cyclicals, smaller cap stocks, and from companies with higher debt levels. This accounts for the poor performance of Gray Television and E.W. Scripps, both of which have elevated debt leverage given recent acquisitions. Both were among the poorest performers for the latest quarter and for the trailing 12 months. The GTN shares were down 12% in the third quarter and 38% for the last 12 months; the SSP shares down 40% and 58%, respectively.
We believe that the sell-off has been overdone, especially as the industry is expected to cycle toward an improved fundamental environment in 2024. As Figure #8 TV Industry Comparables indicate, the Broadcast TV stocks trade at a modest 5.3 times Enterprise Value to our 2024 adj. EBITDA estimates, well below historic 20 year average trading multiples of 8 to 12 times. We believe that the depressed valuations largely discount the prospect of an economic downturn and do not reflect the revenue and cash flow upside as we cycle into a Political year. Given the steep valuation discount to historic levels, we believe that the stocks are 15% to 20% below levels where the stocks normally would be given a favorable Political cycle. Our favorites in the TV space include: Entravision (EVC), one of the beneficiaries of the influx of Political advertising to Hispanics; E.W. Scripps (SSP), a play on Political, with the favorable fundamental tailwind of strong Retransmission revenue growth; and, Gray Television (GTN), one of the leading Political advertising plays.
Figure #8 TV Industry Comparables
Source: Noble estimates & Eikon
Radio Broadcasting
Shoring up balance sheets.
The Radio industry has struggled in the first half as National advertising weakened throughout the year. On average National advertising was down roughly20% or more for many Radio broadcasters. Local held up relatively well, although down in the range of 3% to 5%. Fortunately, for many broadcasters, a push into Digital, which grew in the first half, helped to stabilize total company revenues. As we look to the fourth quarter, we believe that Local advertising is weakening, expected to be down in the range of 5% to 7%, or more in some of the larger markets. But, for some, National advertising is improving, driven by Political advertising. But, Political is not evenly spread. As such, we anticipate that there will be a cautious outlook for many in the industry for the second half of the year.
For some in the industry, the challenged revenue environment has put a strain on managing cash flows to maintain hefty debt loads. We believe that debt leverage is among the top concern for investors. Many of the poorest performing stocks in the quarter and for the trailing 12 months carry some of the highest debt leverage in the industry. The Noble Radio Index decreased a significant 13.7% in the latest quarter compared with a 3.7% decline for the general market. But, a look at the individual stock performance tells a more disappointing story. The shares of Salem Media declined 38% in the latest quarter, bringing 12 month performance to a 44% decline. The shares of iHeart Media decline 49% for the year.
Notably, Salem Media assuaged much of its liquidity concerns with recent asset sales. Such sales will bring in roughly $30 million, allowing it to fully pay off its $22 million revolver and have some flexibility with remaining cash on its balance sheet. We do not believe that investors have fully credited the significance of the recent asset sales.
One bright spot in the group has been the shares of Townsquare Media. While the TSQ shares gave back a significant 27% in the third quarter, the shares are still up 20% over the past 12 months, among one of the best performance in the industry. We believe that the company’s initiation of a substantial dividend resonated with investors.
While the industry faces fundamental headwinds given the current economic challenges, we believe that most companies have made a shift toward faster growth, digital business models. In addition, we believe that Radio will see a lift from Political advertising in 2024, although not to the extent that the TV industry will see. Nonetheless, we look for an improving advertising scenario in 2024. As such, we are constructive on the industry. One of our current favorites leads the industry in its Digital transition, Townsquare Media. As Figure #9 Radio Industry Comparables indicates, the TSQ shares are among the cheapest in the industry, trading at 5.1 times EV to our 2024 adj. EBITDA estimate, well below the average of 7.1 times for the industry. In addition, we like Saga Communications, one of the cheapest stocks in the industry, trading near 4 times EV to 2024 adj. EBITDA.
Figure #9 Radio Industry Comparables
Source: Noble estimates & Eikon
Publishing
Further cost cutting will cut deep.
Publishers are not likely to be spared from the weakening local advertising business. But, publishers have a play book on areas to cut expenses to manage cash flows. Certainly, we believe that its Digital businesses should help offset some of the anticipated revenue declines on its print legacy business. We believe that publishers are eliminating print days. Such a move likely will indicate further pressure on print revenues, but would not proportionately decrease cash flow. Some print days have very little advertising and/or advertisers may shift some spending to other print days. Lee Enterprises indicated in its last call that it will go down to 3 print days in 44 of its smaller markets. We believe that the move has been a success. While revenues may have decreased slightly more than expected given the current weak advertising environment, we believe that cost savings have been more than anticipated.
While many publishers would like to have a long runway for its cash flowing print business, such possible moves would necessarily increase the digital transition. Notably, with just some stabilization of revenues on the print side, many publishers have the potential to show total company revenue growth given benefit from digital revenue. With the prospect of strategies that may cut print days and the current weak local advertising environment, we believe that total revenue growth may be pushed out to 2025.
Many of the Publishing stocks were written off long ago. But, surprisingly, the Publishing stocks have been among the best stock performers in the latest quarter and for the trailing 12 months. The Noble Publishing Index increased a solid 36% in the trailing 12 months, outperforming the general market (as measured by the S&P 500) of 19% in the comparable time frame. In the third quarter, Publishing stocks increased 3.5%, outperforming the S&P 500, which declined 3.7%. All of the publishers increased, with the exception of Lee Enterprises. The Lee shares increased substantially a year earlier on takeover rumors. Since then the shares have come back down to earth, while the rest of the industry moved higher. The stronger performers in the industry, however, were the larger cap companies, such as News Corp and The New York Times. In the latest quarter, the shares of The New York Times increased roughly 5% and the shares are up 27% for the trailing 12 months. The shares of Gannett increased a solid 9% in the latest quarter, as well.
As Figure #10 Publishing Industry Comparables illustrate, there is a disparity among some of the larger, more diversified companies, like The New York Times and News Corporation. The NYT shares trade at a hefty 15.7 times EV to 2024 adj. EBITDA estimates, well above much of the pack currently trading in the 5 multiple range. We believe that this valuation gap should narrow, especially as many of the companies, like Lee and Gannett, have a burgeoning Digital business. While the industry faces secular challenges of its Print business and there are economic headwinds in the very near term, we believe that companies like Lee Enterprises have the ability to manage cash flows and grow its Digital businesses. Given the compelling stock valuation disparity, the shares of Lee Enterprises lead our list of favorites in the sector.
Figure #10 Publishing Industry Comparables
Source: Noble estimates & Eikon
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Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis. Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.” FINRA licenses 7, 24, 63, 87
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Leaders with ANZ Group Holdings, Australia Post, Silverlake Axis, Tech Mahindra and VicRoads named winners in five award categories
STAMFORD, Conn.–(BUSINESS WIRE)– Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, today announced the winners of the first ISG Women in Digital Awards program for the Asia Pacific region, including India, recognizing women and their achievements in the digital world.
At a live, virtual award ceremony earlier today, leaders with ANZ Group Holdings, Australia Post, Silverlake Axis, Tech Mahindra and VicRoads were honored as winners in five categories, as selected by a panel of industry judges.
“In our inaugural year for Asia Pacific and India, the ISG Women in Digital Awards program received more than one hundred nominations of exceptional women who are changing the face of the digital economy in this region,” said Scott Bertsch, ISG partner and regional leader, ISG Asia Pacific, and executive sponsor of ISG Women in Digital in Asia Pacific. “All nominees, and each woman recognized with an award, are making unique and impactful contributions to advancing digital business in this part of the world, and we are delighted to celebrate their success.”
An independent panel of judges, comprised of Jenny Watson, senior director of technology for health insurance and business services, Bupa; Kaylene O’Brien, managing director, Capgemini Australia and New Zealand, and Namratha Dharshan, chief business leader, ISG Research, evaluated the nominations and selected the following winners:
Rising Star: for demonstrating exceptional and continuous growth, with increasing levels of leadership, responsibility and sphere of impact:
Sharbani Dhar, director of design and digital accessibility at Australia Post, was chosen by the judges as the Digital Titan of the Year for Asia Pacific and India from the entire pool of regional nominees, recognizing her as the most outstanding woman in digital in the region for 2023.
The awards program, launched in the Americas in 2022, was expanded for 2023 to the Europe, Middle East and Africa (EMEA) and Asia Pacific regions, including India. The global program received a total of 327 nominees, who are listed in an online ISG Women in Digital eBook. Awards for EMEA will be presented October 26, at 6 p.m., GMT. Awards for the Americas were presented on September 7.
“Women are breaking barriers and making lasting, positive changes in digital and technology leadership roles,” said Kimberly Tobias, ISG director and head of the ISG Women in Digital program. “We are honored to recognize the success of each person nominated. Congratulations to our 2023 winners.”
Created in 2018, the ISG Women in Digital community provides a platform to exchange practical advice and innovative ideas on diversity and advancement in the workplace. The community hosts a LinkedIn page, an ongoing ISG Digital Dish podcast series, and regular events for ISG employees and the greater IT and business services industry.
For more information about the ISG Women in Digital Awards, contact ISG.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
Comtech Telecommunications Corp. engages in the design, development, production, and marketing of products, systems, and services for advanced communications solutions in the United States and internationally. It operates in three segments: Telecommunications Transmission, Mobile Data Communications, and RF Microwave Amplifiers. The Telecommunications Transmission segment provides satellite earth station equipment and systems, over-the-horizon microwave systems, and forward error correction technology, which are used in various commercial and government applications, including backhaul of wireless and cellular traffic, broadcasting (including HDTV), IP-based communications traffic, long distance telephony, and secure defense applications. The Mobile Data Communications segment provides mobile satellite transceivers, and computers and satellite earth station network gateways and associated installation, training, and maintenance services; supplies and operates satellite packet data networks, including arranging and providing satellite capacity; and offers microsatellites and related components. The RF Microwave Amplifiers segment designs, develops, manufactures, and markets satellite earth station traveling wave tube amplifiers (TWTA) and broadband amplifiers. Its amplifiers are used in broadcast and broadband satellite communication; defense applications, such as telecommunications systems and electronic warfare systems; and commercial applications comprising oncology treatment systems, as well as to amplify signals carrying voice, video, or data for air-to-satellite-to-ground communications. The company serves satellite systems integrators, wireless and other communication service providers, broadcasters, defense contractors, military, governments, and oil companies. Comtech markets its products through independent representatives and value-added resellers. The company was founded in 1967 and is headquartered in Melville, New York.
Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
U.S. Army Award. Yesterday, Comtech announced that it was recently awarded a U.S. Army contract with a maximum ceiling value of $544 million. The task order was awarded on Comtech’s existing contract with the U.S. Army, which leverages the ten-year, $5.1 billion Global Tactical Communications Systems II IDIQ contract vehicle.
Details. Under the contract, Comtech will provide onsite professional engineering services as well as supply and support the Company’s market leading satellite and terrestrial networking communications technologies for the Project Manager Tactical Network for the Global Field Service Representative (GFSR) support program. The GFSR program provides ongoing communications and IT infrastructure support for the Army, Air Force, Navy, Marine Corps, and NATO-enabling U.S. and coalition forces to maintain robust, resilient, and secure connectivity for global all-domain operations in all environments.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
STAMFORD, Conn.–(BUSINESS WIRE)– Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, said today it will release its third-quarter financial results on Thursday, November 2, 2023, at approximately 4:15 p.m., U.S. Eastern Time.
The firm will host a conference call with investors and industry analysts at 9 a.m., U.S. Eastern Time, the following day, Friday, November 3. Dial-in details are as follows:
The dial-in number for U.S. participants is +1 (888) 330-2057.
International participants should call +1 (646) 960-0203.
The security code to access the call is 1482106.
Participants are requested to dial in at least five minutes before the scheduled start time.
A recording of the conference call will be accessible on ISG’s website (www.isg-one.com) for approximately four weeks following the call.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
One Stop Systems, Inc. (OSS) designs and manufactures innovative AI Transportable edge computing modules and systems, including ruggedized servers, compute accelerators, expansion systems, flash storage arrays, and Ion Accelerator™ SAN, NAS, and data recording software for AI workflows. These products are used for AI data set capture, training, and large-scale inference in the defense, oil and gas, mining, autonomous vehicles, and rugged entertainment applications. OSS utilizes the power of PCI Express, the latest GPU accelerators and NVMe storage to build award-winning systems, including many industry firsts, for industrial OEMs and government customers. The company enables AI on the Fly® by bringing AI datacenter performance to ‘the edge,’ especially on mobile platforms, and by addressing the entire AI workflow, from high-speed data acquisition to deep learning, training, and inference. OSS products are available directly or through global distributors. For more information, go to www.onestopsystems.com.
Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Submarine Award. One Stop Systems has received an order to design and develop prototypes for a sonar data processing system to be used in a foreign navy submarine application. The order expands OSS’s AI Transportable solutions into a new vertical, new prime relationship, and new application.
Details. The award was procured through a new global defense prime contractor. The win represents the first AI transportable program win for a foreign navy as well as for a subsurface application. OSS expects to deliver the first prototypes by the end of 2023, followed by potential production orders in 2024. If production orders begin, we anticipate the award could add over $2 million to 2024 revenue.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
E-commerce titan Amazon is making a huge investment into artificial intelligence startup Anthropic, injecting up to $4 billion into the budding firm. The massive funding underscores Amazon’s ambitions to be a leader in next-generation AI capabilities.
Anthropic is a two-year old startup launched by former executives from AI lab OpenAI. The company recently introduced its new chatbot called Claude, designed to converse naturally with humans on a range of topics.
While Claude has similarities to OpenAI’s popular ChatGPT, Anthropic aims to take natural language AI to the next level. Amazon’s investment signals its belief in Anthropic’s potential to pioneer groundbreaking generative AI.
Generative AI refers to AI systems that can generate new content like text, images, or video based on data they are trained on. The technology has exploded in popularity thanks to ChatGPT and image generator DALL-E 2, sparking immense interest from Big Tech.
Amazon is positioning itself to capitalize on this surging interest in generative AI. As part of the deal, Amazon Web Services will become Anthropic’s primary cloud platform for developing and delivering its AI services.
The startup will also let AWS customers access exclusive features to customize and fine-tune its AI models. This tight integration gives Amazon a competitive edge by baking Anthropic’s leading AI into its cloud offerings.
Additionally, Amazon will provide custom semiconductors to turbocharge training for Anthropic’s foundational AI models. These chips aim to challenged Nvidia’s dominance in supplying GPUs for AI workloads.
With its end-to-end AI capabilities across hardware, cloud services and applications, Amazon aims to be the go-to AI provider. The Anthropic investment caps off a flurry of activity from Amazon to own the AI future.
Recently, Amazon unveiled Alexa Voice, AI-generated voice assistant. The company also launched Amazon Bedrock, a service enabling companies to easily build custom AI tools using Amazon’s machine learning models.
And Amazon Web Services already offers robust AI services like image recognition, language processing, and data analytics to business clients. Anthropic’s generative smarts will augment these solutions.
The race to lead in AI accelerated after Microsoft’s multi-billion investment into ChatGPT creator OpenAI in January. Google, Meta and others have since poured billions into AI startups to not get left behind.
Anthropic has already raised funding from top tier backers like Google’s VC arm and Salesforce Ventures. But Amazon’s monster investment catapults the startup into an elite group of AI startups tapping into Big Tech’s cash reserves.
The deal grants Amazon a minority stake in the startup, suggesting further collaborations ahead. With Claude 2 generating buzz, Anthropic’s next-gen AI technology and Amazon’s vast resources could be a potent combination.
For Amazon, owning a piece of a promising AI startup hedges its bets should generative AI disrupt major industries. And if advanced chatbots like Claude reshape how customers interact with businesses, Amazon is making sure it has skin in the game.
The e-commerce behemoth’s latest Silicon Valley splash cements its position as an aggressive AI player not content following others. If Amazon’s bet on Anthropic pays off, it may pay dividends in making Amazon a go-to enterprise AI powerhouse.
Shares of marketing software firm Klaviyo jumped 23% in their trading debut Wednesday on the New York Stock Exchange. The successful initial public offering provides investors a rare opportunity to buy into a high-growth U.S. tech startup following a nearly two-year IPO drought.
Klaviyo priced its shares at $30 each, raising $345 million and valuing the company at over $9 billion on a fully diluted basis. The listing comes just a day after grocery delivery service Instacart went public on the Nasdaq after cutting its valuation target. Investor appetite for unprofitable technology names has waned in recent years amid rising interest rates.
But demand for Klaviyo shares was strong right out of the gate. For investors, IPOs provide a chance to gain exposure to emerging, innovative companies before they are available on public markets. Companies utilize IPOs to raise cash for growth and operating expenses.
Klaviyo reported revenue jumped 51% last quarter to $165 million, as its marketing automation software is now used by over 130,000 customers. The company swung to a $11 million profit last quarter after losing money a year earlier.
This transition to profitability is an attractive quality for investors who have soured on money-losing technology firms in the current environment. One major backer providing strong IPO demand is e-commerce platform Shopify, which owns around 11% of Klaviyo’s shares.
Klaviyo gets approximately 78% of its annual recurring revenue from customers who also use Shopify, indicating close ties between the two tech firms. Shopify invested $100 million into Klaviyo last year.
The marketing software provider enables companies to store customer data and build profiles to target marketing campaigns across email, text messaging, social media, and other channels. It initially focused on e-commerce companies but is now seeing growing traction in other sectors like restaurants, travel, and entertainment.
Tech IPOs ground to a halt in 2022, as surging inflation led the Federal Reserve to aggressively raise interest rates, sparking volatility and a flight from risk assets. Klaviyo is the first notable U.S. venture-backed software IPO since HashiCorp and Samsara debuted in December 2021.
The offering provides investors hungry for exposure to high-growth tech the chance to buy into a next-generation software vendor. U.S. tech IPOs slowed to their lowest level in over a decade last year. If strong demand for Klaviyo shares continues, it could open the door for more tech IPOs in 2023.
Companies that only recently considered going public may once again pursue IPOs after Klaviyo’s success. The IPO window for unprofitable tech names appeared shut, but Klaviyo’s ability to raise over $340 million shows investors still have appetite for rapidly growing software vendors.
Looking ahead, the pipeline for tech IPOs includes names like Reddit, Databricks and Discord. But many may delay plans or explore direct listings to avoid leaving money on the table like Instacart. If markets grow choppy again, Klaviyo’s offering window could close as quickly as it opened.
For now, its strong first day of trading is a boon for both the company and tech investors. Early buyers are already sitting on sizable gains from an asset class that struggled last year. If the tech IPO market thaws, it would provide investors access to the high-growth innovators driving the future.
Instacart experienced a red-hot debut on the public markets as shares soared 40% in its first day of trading. The grocery delivery pioneer opened at $42 per share on the Nasdaq exchange, well above its IPO price of $30.
The opening trade valued Instacart at nearly $14 billion, up from the $10 billion valuation set by its IPO pricing on Monday. Demand from investors seeking exposure to the future of grocery commerce drove the shares sharply higher out of the gate.
Trading volume was heavy early on, with over 18 million shares changing hands in the first 30 minutes. The stock traded as high as $47.57 at its peak, showcasing strong appetite for the newly minted public company.
Instacart (CART) raised $420 million through the IPO by selling 14.1 million shares, representing just 8% of its total outstanding shares. Existing shareholders also sold 7.9 million shares in the offering for liquidity.
The blockbuster debut delivered significant returns for IPO participants during a volatile time for tech stocks. But Instacart’s valuation remains below the $39 billion mark it reached at the height of pandemic demand in 2021, reflecting more measured recent tech valuations.
Still, the strong first day pop is a promising sign for Instacart as it embarks on the public market journey. The company priced its offering conservatively to allow room for an impressive inaugural rally.
The offering adds Instacart to the ranks of publicly traded ecommerce innovators disrupting traditional retail models. It joins the likes of DoorDash, Uber, and Amazon in leveraging technology to unlock the potential of online grocery delivery.
Instacart is at the forefront of transforming the $1 trillion grocery industry through its on-demand digital marketplace. Its platform connects customers with personal shoppers who handle orders from partner grocers and deliver items in as fast as an hour.
Founded in 2012 by an Amazon veteran, Instacart was early to recognize the coming wave of grocery ecommerce. The company scaled rapidly when the pandemic accelerated adoption of online ordering and delivery.
Instacart seized its first-mover advantage to emerge as a leader in the space. It has partnered with prominent national, regional, and local grocers to build a retail network covering over 85% of U.S. households.
The company aligned with shifting consumer preferences for convenience and digital experiences. Busy lifestyles and smartphone ubiquity make grocery delivery a killer app of modern ecommerce.
Instacart smartly invested to expand services like fast unstaffed delivery and self-service pickup. Its Instacart Ads platform also lets brands promote products through sponsored listings.
The company rapidly grew revenue to over $7 billion in 2021 during the pandemic-driven surge. More recently it has focused on boosting profitability as demand normalizes post-Covid.
Instacart generated $14 billion in gross merchandise volume in 2021. Its net revenue neared $2 billion, doubling from 2020. But losses have narrowed dramatically since the company turned EBITDA positive last year.
As the first major tech IPO of 2023, Instacart’s trading provides a blueprint for startups and venture investors awaiting public debuts this year. The initial reception indicates persistent investor appetite for innovative tech names with strong growth narratives.
The blockbuster debut opens an exciting new chapter for Instacart and the future of digital grocery. Its first trading day validated Instacart’s pioneering business model and resilient growth prospects.
Knowles Corporation is aggressively transforming into an industrial technology powerhouse. The components supplier announced it will acquire capacitor manufacturer Cornell Dubilier in a $263 million all-cash deal. This strategic purchase provides Knowles with expanded exposure to highly attractive end markets including medtech, defense, and industrial electrification.
Privately-held Cornell Dubilier, based in South Carolina, is a leader in film, electrolytic and mica capacitors used in demanding applications. Its capacitors are found in sectors like aerospace, automation, and critical care medical devices. The company generates over $135 million in revenue annually.
The acquisition brings new state-of-the-art capacitor technology into Knowles’ portfolio. This allows Knowles to offer more innovative solutions and cross-selling opportunities to customers. Cornell Dubilier’s offerings create a compelling combined value proposition for Knowles in the industrials space.
Knowles CEO Jeffrey Niew stated the purchase will help Knowles “grow with new and existing customers as we work to generate stronger earnings and cash flow and create shareholder value.” The deal is expected to contribute positively to Knowles’ earnings per share (EPS) beginning in 2024.
Specifically, the acquisition provides three key benefits:
Expands Knowles’ addressable market – Cornell Dubilier significantly expands Knowles’ serviceable available market through its broad capacitor capabilities and presence in diverse sectors including medtech, defense, aerospace, and industrial automation.
Diversifies product portfolio – Combined with Knowles’ existing precision devices like RF filters and ceramic capacitors, the deal delivers a wider range of capacitor products and solutions including film, electrolytic, and mica capacitors.
Boosts profitability – Knowles expects the acquisition to be accretive to earnings per share starting in 2024. The purchase is forecast to contribute to the bottom line while Knowles maintains balance sheet flexibility through its capital deployment strategy.
For investors, the strategic deal offers exposure to higher growth markets as Knowles pivots towards attractive areas with strong tailwinds. The companies noted defense spending increases, healthcare application growth, and industrial automation advances are driving demand.
The announced $263 million price consists of $140 million upfront and $123 million in seller notes due over the next two years. Knowles expects to finance the deal through cash, existing credit, and the deferred paper. The total fair value transferred is estimated at 9.6x Cornell Dubilier’s trailing EBITDA including synergies.
The acquisition caps off a transformative year for Knowles as it shifts towards high value industrial technology. Knowles recently restructured divisions to optimize its focus areas. It is also reviewing strategic options for its consumer microphones segment.
Together, these moves aim to reshape Knowles into a higher growth, higher margin technology supplier. The company is working to leverage megatrends like IoT, EVs, and 5G adoption. Knowles is strengthening its industrial roots to drive value for shareholders.
The Cornell Dubilier deal provides Knowles with an expanded presence in crucial growth industries. It also refocuses the company towards participating in rising opportunities like defense, medtech, and automation. For investors, the transformative purchase plants Knowles firmly in key sectors, unlocking value over the long-term.
GXO Logistics’ $181 million acquisition of ecommerce fulfillment provider PFSweb signals the immense growth runway ahead for logistics providers as online retail continues rapid expansion.
The deal provides GXO greater exposure to high-growth ecommerce categories like health, beauty, luxury goods, apparel and more where PFSweb has cultivated specialized omnichannel capabilities. GXO also gains PFSweb’s proprietary order management systems, fraud protection, customer care services and distribution technologies that will strengthen its end-to-end fulfillment offerings.
PFSweb serves over 100 prominent consumer brands, including L’Oreal, Pandora, Kendra Scott and others through its facilities across North America, the UK and Belgium. This expands GXO’s relationships in categories experiencing online growth thanks to shifting consumer preferences.
The transformational rise of ecommerce is reshaping logistics networks and fueling acquisitions across fulfillment, last-mile delivery and automation. According to Statista, global ecommerce sales are projected to reach $5.4 trillion in 2023, highlighting the seismic shift to online shopping.
As volumes accelerate, logistics providers aim to capture demand through robust delivery solutions tailor-made for ecommerce. Fulfillment and last-mile acquisitions have increased as giants like GXO, XPO Logistics, UPS and FedEx move to capitalize on the boom in digital orders.
GXO is making sizable investments in automation, AI and optimizing warehouse flows to cement itself as the leader in orchestrating complex ecommerce fulfillment. The PFSweb deal aligns with its focus on allocating capital to high-growth, high-return logistics verticals.
For GXO, the acquisition deepens its competitive moat and brand relationships in strategically important retail categories. PFSweb’s expertise in direct-to-consumer support across the customer journey helps expand GXO’s proposition.
The blockbuster deal also gives GXO access to PFSweb’s 21-year track record successfully servicing and retaining top tier brands. PFSweb has developed a strong reputation for customized branded experiences and excellence in omnichannel execution.
GXO’s chief executive Malcolm Wilson emphasized how PFSweb complements GXO with brand relationships in rapidly expanding ecommerce verticals. The combination cross-sells more comprehensive logistics solutions to each company’s customer base.
For investors, GXO’s move spotlights the immense potential for logistics providers to capitalize on the secular shift online. Ecommerce has fundamentally transformed fulfillment, shipping and reverse logistics processes, with orders that are more variable, faster and customized compared to store replenishment.
Logistics companies essential to ecommerce are primed for significant growth as this trend accelerates. GXO, XPO, UPS, FedEx and other leaders stand to benefit from the structural shift given their networks, expertise and new technology investments.
Already PFSweb’s stock price has jumped nearly 50% following the acquisition news, underscoring Wall Street’s positive perspective. With ecommerce projected to continue double-digit expansion, the logistics sector remains firmly positioned to thrive into the future.
ISG Announces 2023 ISG Paragon Awards™North America Winners
9/14/2023
Program recognizes innovative approaches to leveraging technology and new operating models for business success
STAMFORD, Conn.–(BUSINESS WIRE)– Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, has announced the winners of the 2023 ISG Paragon Awards™ North America, which celebrate the ongoing transformation of sourcing industry partnerships through new approaches and technologies.
Winners in each category were selected by a panel of independent industry experts and announced at the ISG Sourcing Industry Awards Gala Dinner on Wednesday, September 13, at the Westin Dallas Stonebriar Golf Resort & Spa in Dallas.
The 2023 North America ISG Paragon Award winners are:
Excellence: Recognizing outstanding delivery by a technology or service provider
Infosys with Fortune Brands
Innovation: Recognizing the importance of imagination and entrepreneurial spirit in helping organizations future-proof their businesses and better serve clients
Material with Whataburger
Transformation: Recognizing the successful transformation of an organization or key business function
USTwith Harris Health
Workplace of the Future: Recognizing client and employee experience and productivity beyond technology
Unisys with California State University
Environmental Sustainability: Recognizing outstanding positive impacts in one or more environmental sustainability fields for clients, consumers, communities and/or employees
Mastek with Arizona Department of Forestry and Fire Management
Diversity: Recognizing diversity of thought and lived experience that enables changes to the status quo to deliver better client outcomes
Hexaware with IQVIA
“Congratulations to the winners of the 2023 ISG Paragon Awards North America for their innovative achievements in the technology services and sourcing industry,” said Todd Lavieri, partner and president, ISG Americas and Asia Pacific. “Providers and enterprises are continuously finding new ways to complement each other’s strengths and overcome business challenges together. ISG is honored to recognize these important and effective partnerships.”
The ISG Paragon Awards™ North America, produced by ISG Events, were awarded during ISG Sourcing Industry Week, which includes the ISG Sourcing Industry Conference and ISG SourceIT. Winners of the ISG Provider Lens™ Awards, recognizing outstanding performances by providers featured in ISG Provider Lens studies, were also honored at the September 13 gala.
ISG made a contribution in honor of ISG Sourcing Industry Week to Bridging Tech, a nonprofit public charity dedicated to providing educational opportunities and technology to K-12 students affected by homelessness.
Full details of the ISG Paragon Awards program are available on the award website.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
Tesla’s new Dojo supercomputer could unlock tremendous value for investors, according to analysts at Morgan Stanley. The bank predicts Dojo could boost Tesla’s market valuation by over $600 billion.
Morgan Stanley set a sky-high 12-18 month price target of $400 per share for Tesla based on Dojo’s potential. This implies a market cap of $1.39 trillion, which is nearly 76% above Tesla’s current $789 billion valuation.
Tesla only began producing Dojo in July 2022 but plans to invest over $1 billion in the powerful supercomputer over the next year. Dojo will be used to train artificial intelligence models for autonomous driving.
Morgan Stanley analysts estimate Dojo could enable robotaxis and software services that extend far beyond Tesla’s current business of vehicle manufacturing. The bank nearly doubled its 2040 revenue projection for Tesla’s network services division from $157 billion to $335 billion thanks to Dojo.
By licensing self-driving software powered by Dojo to third-party transportation fleets, Tesla could generate tremendous high-margin revenues. Morgan Stanley sees network services delivering over 60% of Tesla’s core earnings by 2040, up from just 30% in 2030.
Thanks to this upside potential, Morgan Stanley upgraded Tesla stock from Equal-Weight to Overweight. The analysts stated “Dojo completely changes the growth trajectory for Tesla’s autonomy business.”
At its current $248.50 share price, Tesla trades at a lofty forward P/E ratio of 57.9x compared to legacy automakers like Ford at 6.3x and GM at 4.6x. But if Morgan Stanley’s bull case proves accurate, Tesla could rapidly grow into its valuation over the next decade.
In summary, Tesla’s AI advantage with Dojo makes the stock’s premium valuation more reasonable. Investors buying at today’s prices could reap huge gains if Dojo unlocks a new $600 billion revenue stream in autonomous mobility services.
The Power and Potential of Dojo
Dojo represents a massive investment by Tesla as it aims to lead the future of autonomous driving. The specialized supercomputer is designed to train deep neural networks using vast amounts of visual data from Tesla’s fleet of vehicles.
This differentiated AI training will allow Tesla to improve perceptions for full self-driving at a faster pace. As self-driving functionality becomes more robust, Tesla can unlock new revenue opportunities.
Morgan Stanley analyst Adam Jones stated: “If Dojo can help make cars ‘see’ and ‘react,’ what other markets could open up? Think of any device at the edge with a camera that makes real-time decisions based on its visual field.”
Dojo’s processing power will permit Tesla to develop advanced simulations that speed up testing. The supercomputer’s capacity is expected to exceed that of the top 200 fastest supercomputers combined.
Tesla claims Dojo will drive down the costs of training networks by orders of magnitude. This efficiency can translate into higher margins as costs drop for autonomous AI development.
Dojo was designed in-house by Tesla AI director Andrej Karpathy and his team. Karpathy called Dojo the “most exciting thing I’ve seen in my career.” With Dojo, Tesla is aiming to reduce reliance on external cloud providers like Google and Amazon.
Morgan Stanley Boosts Tesla Price Target by 60%
The potential of monetizing Tesla’s self-driving lead through Dojo led analysts at Morgan Stanley to dramatically increase their expectations.
Led by analyst Adam Jones, Morgan Stanley boosted its 12-18 month price target on Tesla stock by 60% to $400 per share. This new level implies a market value for Tesla of nearly $1.39 trillion.
Hitting this price target would mean Tesla stock gaining about 76% from its current level around $248.50. Tesla shares jumped 6% on Monday following the report as investors reacted positively.
Jones explained the sharply higher price target by stating: “Dojo completely changes the growth trajectory for Tesla’s autonomy business.”
He expects Dojo will open up addressable markets for Tesla that “extend well beyond selling vehicles at a fixed price.” In other words, Dojo can turn Tesla into more of a high-margin software and services provider.
