Urthecast gets price target cut at Clarus Securities

Delays with Urthecast’s (Urthecast Stock Quote, Chart, News: TSX:UR) OptiSAR constellation has Clarus Securities analyst Noel Atkinson cutting his price target on the company’s stock.

Yesterday, Urthecast reported its Q2, 2016 results. The company lost $277,000 on revenue of $21-million, 322 per cent better than the same period last year.

“Our financial results are beginning to reflect both the strong revenue momentum and significant operating leverage in our business,” said CEO Wade Larson. “We continue to see a strong expansion of our sales pipeline for our current business, as well as significant progress toward realizing our goals for UrtheDaily and OptiSAR.”

Atkinson says he believes the OptiSAR concept is “truly revolutionary” and notes the strong support it has garnered from various governments. But he notes that on its earnings call Urthecast management was reluctant to peg exactly when one of its MOUs would turn into a contract, and said geopolitical headwinds were slowing negotiations, resulting in management pushing out its target launch date to 2021.

This development caused Atkinson to push out his projected start date for OptiSAR revenue by 18 months, resulting in a price target cut today. In a research update to clients today, Atkinson maintained his “Buy” rating on Urthecast, but lowered his one-year price target from $7.25 to $4.75. He says that what appears to be a stopgap measure won’t fill the void.

“It appears to us that the UrtheDaily constellation (and perhaps also the PanGeo Alliance “constellation”) is being positioned to fill the gap somewhat until OptiSAR is up and running,” said the analyst. “Management continues to expect a launch in 2018 and full operational capability by spring 2019, with launch vehicles still apparently available for that timeframe. We see the UrtheDaily as potentially lucrative for UrtheCast but not nearly to the extent of OptiSAR, and as UrtheDaily is also to be customer-funded we are not yet ascribing any contribution from this proposed constellation to our estimates or target price.”

Atkinson believes Urthecast will post EBITDA of $6.8-million on revenue of $77.1-million in fiscal 2016, and thinks those numbers will grow to $29.3-million on revenue of $98.3-million the following year.