A fourth quarter he characterizes as “disappointing” has Industrial Alliance Securities analyst Neil Linsdell lowering his rating and price target on Exco Technologies (TSX:XTC), although he he still considers the stock to be undervalued.
On Wednesday, Exco reported its fourth quarter and fiscal 2017 results. In the fourth quarter, the company earned $7.5-million on revenue of $131.4-million, a topline that was down 19.4 per cent from the same period last year.
“Exco experienced a challenging quarter in both of its business segments,” said CEO Brian Robbins, who noted that lower vehicle production volumes in North America, adverse foreign exchange rate movements, higher accruals for inventory obsolescence in its automotive solutions segment and increasingly competitive market conditions were key factors in the results. “While our financial results this quarter are clearly disappointing, we do not believe they are indicative of our future potential. “On a brighter note, we expect the groundwork laid in fiscal 2017 from our various efficiency initiatives and sales efforts will pave the way for an improvement to our financial results in fiscal 2018. As well, Exco’s financial position remains very strong as we ended the quarter with net debt of just $10.9-million.”
Linsdell notes that Exco’s revenue number fell below the $146.6-million he had modeled and the street consensus of $146.0-million. The analyst today cut his price target and rating on the stock, and explained why in a note to clients.
“We are reducing our target price to $13.00 (from $16.00), as we trim our valuation multiples to 11× P/E (from 12×) and 6.5× EV/EBITDA (from 7.0×), in line with historical ranges, as the Company manages through a challenging market and operational transitions, and as we have revised our forecasts lower, but roll forward one quarter to use our F2019 forecasts,” the analyst said. “Bottom line, with a still challenging environment, as we wait to see the efficiency improvements and return to revenue growth that is expected to improve EPS in F2018, we are revising our rating from Strong Buy to Buy.”
Linsdell’s new $13.00 On Exco Technologies target implied a return of 39.3 per cent at the time of publication.