Altra Industrial Motion Corp

Altra Industrial Motion Corp (NASDAQ: AIMC) is a Massachusetts, United States-based Company, and is a global designer and producer of a wide range of MCPT (motion control and power transmission) solutions.

Rationale for Valuation – Expensive at USD 65.07

• The Company has raised its 2020 guidance, with strong cash flow performance and an increase to the quarterly dividend.
• The Company is trading near a 52-week high, and Price/Earnings, EV/EBITDA, EV/Sales and Price/Cash Flow multiples are significantly higher as compared to corresponding multiples of the Machinery, Tools, Heavy Vehicles, Trains & Ships industry, reflecting overstretched valuations.
• The operating landscape remains highly volatile with the continuing uncertainty due to Covid-19 pandemic.
• From the technical standpoint, 90-day RSI stood at ~79.32 (overbought zone), which means the stock price could decline in the short term.

Key Risks

• The Company operates in multiple geographies, and profits may be impacted negatively due to foreign exchange rate fluctuations and the effects of tariffs and other trade actions taken by the United States and other countries.
• In the near future, the Company will be facing uncertainties due to the increased aggressiveness of the competitor activities.
• The significant risk for the Company is to maintain worldwide legal and regulatory compliance.

Q3 FY20 (for the third quarter ended 30 September 2020, as on 23 October 2020)

(Source: Company Website)

• The Company delivered another excellent quarter, with an improved operating income margin.
• However, the net sales for Q3 FY20 decreased by 1.2% YoY, with a decrease of 9.6% YoY in Power Transmission Technologies (PTT) segment sales. While, it has shown an increase in Automation & Specialty (A&S) segment sales, which was up by 7.1% YoY.
• The Company witnessed an improvement in the bottom-line items, especially reported net income was up by 49% YoY, and Non-GAAP net income increased by 28% YoY.
• In the year-to-date period ended 30 September 2020, the cash ow from operations decreased 10.31% YoY, with a non-GAAP free cash flow of USD 137.5 million.
• On 30 September 2020, the cash balance was USD 238.7 million, and availability under the revolving credit facility stood at USD 294.8 million, with paid down USD 60 million on the outstanding term loan.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

For FY20, the Company expects sales to be in the range of USD 1,690-1,710 million, GAAP diluted EPS to be in the range of a loss of USD 0.55-0.46, Non-GAAP diluted EPS to be between USD 2.70 to USD 2.82 and Non-GAAP adjusted EBITDA to be in the range of USD 355-370 million. Moreover, it has increased its Non-GAAP Adjusted Free cash flow guidance from USD 160-200 million to USD 210-225 million. Meanwhile, the Company saw another excellent quarter, with significant improvement in the bottom line, good margin performance, reduction in debt of USD 60 Million and strong cash flow generation. It has increased its quarterly dividend by 50% to 6 cents per share. While the business is more exposed to the economic uncertainties arising from the Covid-19 pandemic. In the future, the Company may face emerging headwinds and cost pressures. The Group is presently trading near the 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of USD 12.00 and USD 66.38, respectively.

Based on the factors as highlighted above, we believe the stock of Altra Industrial Motion Corp is “Expensive” at the closing price of USD 65.07 (as on 11 January 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of US market and improved investors sentiments.

Senseonics Holdings Inc

Senseonics Holdings Inc (AMEX: SENS) is a Maryland, United States-based medical technology Company, which focuses on the development, design and commercialization of glucose monitoring system.

Rationale for Valuation – Expensive at USD 0.8512

• The Company’s profitability margins and Return on equity remained in the negative zone from the last three years.
• The Company’s EV/EBITDA, Price/Earnings and Price/Cash Flow multiples are in the negative zone.
• From the technical standpoint, 14-day RSI stood at ~61, which means the stock price could decline in the short term.

Key Risks

• Due to the Covid-19 pandemic, the Company could face liquidity risk during the crisis period. The business must adhere to the stringent regulatory requirements.
• Moreover, consumer confidence is battered in recessionary economic conditions.

Recent News

On 6 January 2021, the Company had made equity grants to new employees, which is under its 2019 Inducement Plan.

Business Update (as on 23 December 2020)

• The Company has increased its Q4 FY20 net revenue guidance, which is expected to be USD 3.5 million.
• In Europe, it is executing an orderly commercial transition from Roche to Ascensia.
• For FY21, the Company expects net revenue to be in the range of USD 12-15 million.
• SENS witnessed a strong performance of the current Eversense system and will improve access to Eversense for Medicare patients.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

In Q4 FY20, the Company delivered a strong performance, with good sales in Europe and an increase in Ascensia’s initial US sales. It has established a solid commercial team integrated with the Eversense operations across the US. Looking forward, it expects to ramp up the investment and will be expanding the worldwide sales and marketing activities. SENS’s operations were not materially impacted by the covid-19 pandemic, while the market remained highly uncertain. Moreover, the Company works in a challenging environment that requires continuous investment, sometimes at the profitability cost, to stay ahead of competitors. Overall, the Company is still in the development stage. The stock made a 52-week low and high of USD 0.3497 and USD 1.78, respectively.

Based on the factors as highlighted above, we believe the stock of Senseonics Holdings Inc is “Expensive” at the closing price of USD 0.8512 (as on 11 January 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of US market and improved investors sentiments. 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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