With market sentiment negative and the stock near 52-week lows, Industrial Alliance Securities analyst Dylan Steuart thinks it’s time to take a look at DH Corporation (DH Corporation Stock Quote, Chart, News: TSX:DH).
In a research update to clients today, Steuart maintained his “Strong Buy” rating and one-year price target of $46.00 on DH Corp, implying a return of 70.4 per cent at the time of publication.
Steuart says despite steady cash flow generation, DH Corp. is trading at a 16.8 per cent discount to its peers, at an EV/EBITDA multiple of 9.3x. The analyst says this is a key disconnect that investors should take advantage of.
“As a reminder, cash generation remains a key metric for investors given the importance of: 1) maintaining DH’s $1.28 annualized dividend (now yielding 4.6%); 2) maintaining healthy capital expenditures; and 3) reducing debt levels,” says the analyst. “Indications of strong cash flows along with signs of sustained organic top line growth from the upcoming Q3/16 earnings release (October 25) would be the next catalyst to shrink the persistent valuation discount to peers.”
DH will report its Q3, 2016 results on October 25. The company is following on a Q2 in which it earned $59-million on revenue of $424-million, a topline that was up 14 per cent over the same period a year prior.
Steuart thinks DH Corp. will posted Adjusted EBITDA of $493-million on revenue of $1.70-billion in fiscal 2016, numbers he expects will climb to EBITDA of $559-million on revenue of $1.78-billion the following year.