Fiserv, Inc. 

Fiserv, Inc. (NASDAQ: FISV) operates in payments and financial technology industry and helps its clients to achieve best-in-class results through its product innovation and excellence across account processing and digital banking solutions and related services.

Key Updates:

• Strong Growth in Cash flows: During FY20, the company reported strong growth in its cash from operations at USD 4,147 million, significantly higher than USD 2,795 million in the previous year. The improvement was supported by higher net income and improved working capital management. Free cash flow conversion for FY 20 was 121% v/s 118% in FY19. 

• Impressive Guidance: For FY21, the company expects its internal revenue growth in between 8% to 12% over FY20, while adjusted EPS is expected within USD 5.30 to USD 5.50, reflecting a growth of 20-24%. Free cash flow conversion is expected at ~108%, and adjusted operating margin is expected to grow by 250 bps.

FY21 Outlook (Source: Company Presentation)

• Recent Acquisition to enhance business prospects:  The company confirmed the acquisition of Pineapple Payments, which operates in payment processing, proprietary technology, and omni-channel payment acceptance. With this acquisition, the company is planning to cater the new set of clients with innovations, while we believe the group would be benefited from Pineapple’s current client base of more than 25,000. The deal is expected to close in the second quarter of FY21. 

Q4FY20 Financial Highlights:

• FISV announced its quarterly result, wherein the company posted total revenue of USD 3,832 million, lower than USD 4,045 million in Q4FY19. The decline was due to a lower income from processing and services segment.
• Total expenses stood at USD 3,316 million, lower than USD 3,567 million in Q4FY19. The decline was majorly due to the lower cost of processing and services (USD 1,353 million v/s USD 1,571 million in pcp), and slightly lower selling, general and administrative costs (USD 1,459 million v/s USD 1,463 million in pcp).
• Net income was recorded at USD 313 million, higher than USD 241 million in Q4FY19.

Q4 FY20 Income Statement Highlight (Source: Company Report)

Risks: The Company is exposed to risks of varying degrees of significance, affecting its ability to achieve its strategic objectives for growth. As the Company is in the Information technology sector; hence, the significant risk of technological change arises. Other risks are also there, such as acquiring new merchants and partners, consumer spending trends, evolving industry standards, intense competition, Currency fluctuations etc.

Valuation Methodology (Illustrative): Price to Earnings based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The group reported decent operating performance in FY20, and the management is optimistic about FY21, which reflects in the guidance. Moreover, the recent acquisition of Pineapple Payments would diverse its customer base, which is a key positive. We have valued the stock using P/E based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like NCR Corp, Visa Inc etc. Considering the above-mentioned facts, we give a ‘Hold’ rating on the stock at the last closing price of USD 125.53 on April 15, 2021.

One-Year Price Chart (as on April 15, 2021). Source: Refinitiv (Thomson Reuters)

Physicians Realty Trust

Physicians Realty Trust (NYSE: DOC) is a U.S based healthcare company, which acquires, develops and leases healthcare properties to physicians, hospitals, and healthcare delivery systems. Its portfolio includes medical office buildings, outpatient treatment and diagnostic facilities, physician group practice clinics, ambulatory surgery centres and specialty hospitals.

Key highlights 

• An Income play: The trust continues with a track record of dividend payment. Recently it announced a quarterly dividend of USD 0.23 per unit payable on April 16, 2021. It would be the trust’s 31st consecutive quarterly dividend, which generates confidence in the investors. Moreover, at the last closing price, the stock was offering a dividend yield of 5.063%, which is lucrative considering the current interest rate environment. 

• Rich rent collection: The trust has received cash equivalent to over 90% of all rent and other charges due from its tenants as of December 31, 2020, with 99.6% of rent due collected in the fourth quarter. Furthermore, it also finished the year with the lowest remaining accounts receivable balance it has ever seen, as a percentage of income, and the highest occupancy rate of all public operators of medical office buildings, at 96 percent.

• Industry Leading Tenant Base: The trust's portfolio is industry-leading in terms of credit rating, turnover, and residual lease duration, outperforming its nearest competitors.

Source: Company    

• Event Update: The company would release its financial results for the first quarter ended March 31, 2021, before the market opens on May 5, 2021. 

Financial overview of FY 2020 (In thousands of USD)

Source: Company 

• In FY 2020, total revenues increased by USD 22.2 million, or 5.4% to USD 437.5 million, against USD 415.2 million in the previous corresponding period. Higher revenue was primarily due to healthy performance from the rental revenue segment as well as from interest income.
• Total expenses increased to USD 373.6 million in FY2020, against USD 369.3 million in FY2019. Expenses increased primarily due to impairment loss of USD 4.8 million in the reported period.
• Income before equity in loss of unconsolidated entities and gain on sale of investment properties stood at USD 63.9 million, against USD 45.9 million in pcp.
• The trust posted a net income of USD 68.4 million, against USD 77.1 million in pcp. 

Risks associated with investment

Trust’s health care properties and tenants face competition from nearby hospitals and other health care properties; any dropdown in occupancy level and rent collection could adversely impact the trust’s financials. Furthermore, the health care industry is heavily regulated; changes to existing laws and regulations, health policies could adversely affect. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

From the onset of the pandemic through December 31, 2020 the trust collected cash equal to over 99% of all rent and other charges due from its tenants, culminating in the collection of 99.6% of rent due in the fourth quarter. It also ended the year with the lowest outstanding accounts receivable balance it has ever had. Furthermore, the trust’s portfolio is industry-leading in terms of credit rating, turnover, and residual lease duration, outperforming its nearest competitors. We have valued the stock using EV to Sales based valuation metrics and arrived at a target price offering a lower double digit downside potential (in % terms). Therefore, we recommend an “Expensive” rating on the stocks at the closing price of USD 18.43 as of April 15, 2021 and suggest investors to wait for better entry levels. We have considered Sabra Health Care REIT Inc, Welltower Inc, Healthcare Realty Trust Inc. as the peer group for the comparison.

1-Year Price Chart (as on April 15, 2021). Source: Refinitiv (Thomson Reuters)

Vaxart, Inc

Vaxart Inc (NASDAQ: VXRT) is a clinical-stage biotechnology company which focuses on developing oral recombinant vaccines. VXRT products pipeline consist of the treatment of Coronavirus, Norovirus, Seasonal Influenza, RSV (respiratory syncytial virus), and HPV (Human papillomavirus) Therapeutic.

Key Highlights:

• The company conducted its Phase 1 trial for its candidate VXA-CoV2-1 and reported that it met the primary and secondary endpoints. As reported, the above was generally well-tolerated, with no severe adverse events. Currently, the company is targeting both the S and N proteins for the existing VXA-CoV2-1 candidate, and planning to advance to Phase 2 testing in the second quarter of FY21.
• Recently, the company collaborated with Attwill Vascular Technologies, LP, for manufacturing and lyophilizing certain compounds and further tableting the lyophilized compounds, which would be used for the oral COVID-19 vaccine. 

FY20 Financial Highlights:

• VXRT announced its full-year result, wherein the company posted total revenue of USD 4.046 million, significantly lower than USD 9.862 million in FY19. The decline was primarily due to a lower royalty revenue (USD 2.962 million v/s USD 4.446 million in FY19) and a significant decline in Non-cash royalty revenue related to sale of future royalties (USD 0.886 million v/s USD 5.030 million in FY19).
• Total operating expenses stood higher at USD 34.216 million, as compared to USD 25.647 million in pcp. The increase was primarily attributed to higher research and development expense and a surge in general and administrative costs (USD 15.202 million v/s USD 6.187 million in FY19).
• Operating loss widened to USD 30.170 million from USD 15.785 million in FY19.
• The company reported a net loss of USD 32.22 million v/s a net loss of USD 18.645 million in the previous year.
• The group reported cash and cash equivalents of USD 126.870 million, while total assets were recorded at USD 152.582 million.

FY20 Income Statement Highlight (Source: Company Report)

Risk:  The company does not have a stable revenue base, and a higher research and development expense and general and administrative costs might take a toll on the overall performance. Moreover, any negative outcome from the clinical trial would affect the business prospects.

Stock Recommendation:

The company has an impressive product pipeline and passed the initial phase of testing for COVID-19 vaccine, which is a key positive. However, the company would start its second phase of clinical trials in the second quarter, and there is no guarantee that it would receive a green signal from the regulatory bodies. Hence, we prefer to remain on the sidelines. Moreover, despite a correction of ~26% in the last three months, the stock is trading at EV to Sales multiples of 128.9x on TTM basis, v/s the industry (Biotechnology and Medical Research) median of 24.1x. Based upon the above rationale and stretched valuation, we give an ‘Avoid’ rating on the stock at the closing price of USD 5.425 on April 15, 2021.

Price Chart (as on April 15, 2021). Source: Refinitiv (Thomson Reuters)

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