DHX Media stock has 90 per cent upside, Echelon Wealth says

Children’s TV programming company DHX Media (DHX Media Stock Quote, Chart TSX:DHX, NASDAQ:DHXM) underwhelmed with its quarterly earnings earlier this month but the company still has some upside, says analyst Rob Goff of Echelon Wealth Partners, who maintains his “Speculative Buy” rating with a lowered price target of $2.85.

Halifax-based DHX has faced some scrutiny of late as the company works to cut costs by suspending its dividend and laying off staff. A strategic review process has recently concluded without a sale of the company but involving a number of changes at the management level.

DHX’s fiscal fourth quarter results came in below consensus at $97.4 million in revenue, a $10-million increase over FQ4/2017, and an EBITDA of $16.0 million, a $7.7 million decrease over FQ4/2017.

The results caused Goff to adjust his forecasts, now calling for fiscal 2019 revenue and adjusted EBITDA of $448.6 million and $87.0 million, respectively (previously, they were $467.6 million and $104.5 million, respectively).

At the same time, Goff says he is optimistic that the company’s cost reductions and a return to steady distribution revenue should move DHX back to either flat or modest EBITDA growth in fiscal 2019.

“We maintain our view that DHX will move forward to monetize on the value of its library and portfolio strength through improved execution and partnerships,” said Goff in a note to clients on Tuesday. “We are optimistic that the further re-calibrations taken with the final results will set a baseline, where improved execution would potentially lead to outperformance. We further consider the potential for additional partnerships and sales to surface additional value, while strengthening its financial position.”

Goff says his $2.85 target (was $3.75) is at a 25 per cent discount to the low end of his sum-of-the-parts valuation and at a 40 per cent discount to his DCF valuation. His target represents a projected 12-month return on investment of 90 per cent at the time of publication.