Photon Control still has upside, says Euro Pacific Canada

Photon Control (Photon Control Stock Quote, Chart, News: TSXV:PHO) has had a nice run in 2016, but Euro Pacific Canada analyst Amr Ezzat thinks the stock still has upside.

Yesterday, Photon Control reported its fourth quarter and fiscal 2015 results. In the fourth quarter, the company posted earnings of $0.02 and EBITDA of $1.9-million on revenue of $5.8-million.

“This has been a fantastic year for Photon Control, and we are well positioned going into 2016 with a favourable cash balance and a strong sales order backlog,” said CEO Christopher Weston.

Ezzat says Photon Control’s fourth quarter results were ahead of his expectations of earnings of $0.01, EBITDA of $1.3-million and revenue of $4.9-million. In a research update to clients today the analyst maintained his “Buy” rating, but raised his one-year target price on Photon Control from $1.00 to $1.10.

The analyst explained the reasoning behind his bullish stance on the stock.

“Photon exposes investors to a solid and growing business at what we consider to be very compelling valuation levels,” says Ezzat. “While we recognize the risks of customer concentration and industry cyclicality, we believe the Company presents attractive risk-reward characteristics at current levels. Namely, we see solid FCF generation driving the Company’s cash balance from $0.14/shr in 2014 to $0.41/shr in 2017. Revenue CAGR of 16.1% during the same time period together with EBITDA margin expansion drives 22.0% EBITDA CAGR, helping sustain the Company’s best-in-class ROIC of 30%+. The Company currently trades at what we consider very attractive valuation levels relative to its fundamentals. The Company’s stock price is currently reflecting a 6.5x/5.1x 2016E/2017E EBITDA multiple and a 13.0x/10.2x 2016E/2017E diluted EPS multiple. We derive our $1.10 target price using a discounted cash flow analysis with a 13.0% discount rate and 3.0% perpetual growth rate.”