Datto Holding Corp.

MSP Details

Pricing of IPO: Datto Holding Corp. (NYSE: MSP) is a leading provider of cloud-based software and technology solutions to businesses across the globe. On 20 October 2020, the company came up with the initial public offering (IPO) of 22 million shares of its common stock at an offering price of $27.00 per share. Following this, the company’s stock began trading on NYSE on 21 October 2020. The proceeds raised from the IPO are expected to be used to repay the company’s outstanding borrowings under its term loan and revolving credit facilities. On 3 November 2020, the underwriters of the IPO exercised their option to purchase up to an additional 3,300,000 shares of common stock from MSP at $27.00 per share, less underwriting discounts and commissions.

Financial Highlights: For Q2FY20, the company’s subscription revenue stood at $118 million, up 18% on the previous corresponding period (pcp). For H1FY20, the company’s gross profit margin stood at 71%, higher than 66% reported in 2019. Further, the company’s adjusted EBITDA margin stood at 26%, higher than 18% reported in 2019. For H1FY20, the company reported a net income of $10.12 million.

Quarterly Subscription Revenue (Source: Company Reports)

Focus Areas: Looking ahead, the company is focused on expanding its partner base by adding new Managed Service Providers (MSPs). Further, the company is focused on extending its product leadership and introducing new platform solutions.  The company is committed to invest in new purpose-built product and service offerings to anticipate and meet the evolving demands of its MSP partners and their SMB customers.

Stock Recommendation: The company is likely to report its Q3FY20 financial results on 23 November 2020. On a YTD basis, the stock has provided a return of 14.21% and retains the potential for further upside. On a technical analysis front, the stock has a support level of ~$28.13 and a resistance of ~$31.74. On a TTM basis, the stock has an EV/EBITDA multiple of 58.6x, lower than the industry average (Software & IT Services) of 64.98x. Considering the growth in the company’s subscription revenues, improving margin leverage, multiple levers for sustained growth, and future focus areas, we give a “Buy” recommendation for the stock at the closing price of $30.86, down by 0.29% on 12 November 2020.

MSP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Evolus, Inc.

EOLS Details

Promotion Announcements: Evolus, Inc. (NASDAQ: EOLS) is a performance beauty company focused on the successful commercialization of its sole product Jeuveau^®. As on 12 November 2020, the company’s market capitalization stood at ~$116.43 million. On 29 October 2020, the company announced the promotion of Michael Mazen Jafar to Chief Commercial Officer. Michael joined the company in June 2018 as the Company’s Chief Marketing Officer and under his leadership, Jeuveau^® launched as the first new aesthetic neurotoxin in the United States in more than a decade. The company has also announced the promotion of Jeff Plumer to General Counsel, effective November 1, 2020.

Q3FY20 Results Highlights: During the quarter ending 30 September 2020, the company witnessed decent underlying market demand for Jeuveau®, driven by a 14% increase in purchasing accounts compared to the Q2FY20 to over 5,000 accounts. For Q3FY20, the company’s net revenue stood at $17.7 million, up 34% on pcp. The company’s gross margin percentage stood at 72.5% in Q3FY20, and its GAAP operating expenses decreased by 38% to $21.6 million, as compared to pcp. As at 30 September 2020, the company had total cash, cash equivalents and short-term investment of $110.12 million.

Q3FY20 Results (Source: Company Reports)

Key Risks: The company’s debt to equity multiple for September 2020 quarter stood at 3.79x, higher than the industry median of 0.30x. This could mean that the company is at a higher risk of repaying liabilities than its industry peers. Further, the company is exposed to the risk associated with the COVID-19 pandemic. There is also a risk that the company may not obtain regulatory approval for the commercialization of any future product candidates.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendations: The stock of EOLS has corrected by 4.1% in the last three months and 25.32% in the last one-month period. On the technical analysis front, the stock has a support level of ~$2.78 and a resistance of ~$6.36.  We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with limited upside. For the purpose, we have taken peers like Teva Pharmaceutical Industries Ltd (NYSE: TEVA), Neos Therapeutics Inc (NYSE: NEOS), Mylan NV (NYSE: MYL), etc. Considering the company’s high debt to equity multiple, limited potential upside and associated key risks, we suggest investors to “Avoid” the stock at the closing price of $3.45, up by 7.14% on 12 November 2020.

EOLS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Raytheon Technologies Corporation

RTX Details

Acquisition of Blue Canyon Technologies: Raytheon Technologies Corporation (NYSE: RTX) is an aerospace and defense company focused on delivering solutions that push the boundaries in avionics, cybersecurity, directed energy, electric propulsion, hypersonics, and quantum physics. As of 12 November 2020, the company’s market capitalization stood at ~$97.18 billion. On 10 November 2020, the company announced that it has signed a definitive agreement to acquire privately-held Blue Canyon Technologies. The acquisition will allow the company to deliver a broader range of solutions to support its customers' space missions. It is expected that the acquisition will be completed by early 2021, subject to completion of customary conditions and regulatory approvals. The company recently announced that OGMA is the new authorized maintenance center for Pratt & Whitney engines, a unit of Raytheon Technologies.

Q3FY20 Results Highlights: For the quarter ending 30 September 2020, the company’s net sales stood at $14.747 million, higher than $11.37 million in pcp.  Over the quarter, the company achieved around $700 million of cost reduction and $1.9 billion of cash conservation actions.  GAAP EPS from continuing operations stood at $0.10 in Q3FY20, including $0.48 of net significant and/or non-recurring charges and acquisition accounting adjustments. Due to the timing of customer collections and the accelerated execution on cash conservation actions, the company saw a decent Operating cash flow of $1.6 million in Q3FY20.

Q3FY20 Results (Source: Company Reports)

Track Record of Paying Cash Dividends: The company has been paying cash dividends to its shareholders since 1936. On 14 October 2020, the company announced that it is going to pay a quarterly Cash dividend of 47.5 cents per outstanding share of RTX common stock on 17 December 2020.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: With long-term business fundamentals, earnings power of the company, balanced and diversified portfolio of both aerospace and defense businesses, the company seems well placed to navigate through COVID-19 pandemic and future business cycles. On the technical analysis front, the stock has a support level of ~$55.94 and resistance of ~$74.83. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers like Lockheed Martin Corp (NYSE: LMT), L3harris Technologies Inc (NYSE: LHX), Textron Inc (NYSE: TXT), etc. Considering the company’s long-term business fundamentals, diversified portfolio of both aerospace and defense businesses, decent Q3FY20 performance, valuation and current trading levels, we give a “Buy” recommendation for the stock at the closing price of $63.99, down by 2.82% on 12 November 2020.

RTX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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