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 (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.”
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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.