On Monday, May 30, Photon Control will report its Q1, 2016 results. Ezzat expects the company will deliver sales of $6.0-million, a figure that would be up 3 per cent sequentially and down 13 per cent year-over-year. The analyst thinks the company will deliver EBITDA of $1.7-million, down from the $2.6-million the company delivered in the same period last year.
Ezzat notes that Photon ended the fourth quarter of 2015 with a backlog of $5.6-million, which was up 16.7% from the $4.8-million backlog the company had in the third quarter of 2015. The analyst says historically, backlog has been a reliable indicator of sales growth and think the stock currently looks cheap.
“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 $0.25/shr in 2015 to $0.51/shr in 2018. Revenue CAGR of 16% during 2016-2018 together with EBITDA margin expansion drives 25% EBITDA CAGR, helping sustain the Company’s best-in-class ROIC of 30%+.Photon currently trades at what we consider very attractive valuation levels relative to its fundamentals.”
In a research update to clients yesterday, Ezzat maintained his “Buy” rating and one-year price target of $1.10 on Photon Control, implying a return of 46.7 per cent at the time of publication.