DE stock is a buy, Beacon says

Ahead of the company’s third quarter results, Beacon Securities analyst Russell Stanley has maintained his “Buy” rating on Decisive Dividend Corp (Decisive Dividend Corp Stock Quote, Chart, News, Analysts, Financials TSXV:DE)

On Tuesday, November 7, DE will report its third quarter results. The analyst summarized what he expects.

“We are looking for revenue/adjusted EBITDA of $37.9M/$6.6M v. consensus at $36.9M/$6.6M,” he said. “These results will reflect an almost-complete quarter contribution from the $15.5M acquisition of Innovative Heat Technologies. Along with seasonal improvement in certain base businesses, IHT should drive q/q growth from revenue/adjusted EBITDA of $30.7M/$5.3M in Q2. We also expect Decisive to deliver free cash flow less maintenance CAPEX of $3.3M or $0.16/sh, up from $2.7M or $0.15/sh in Q2, with this metric being a key input in DE’s determination of its monthly dividend. In addition to the financial results, we will be looking for an update on the integration of IHT, the performance of the portfolio companies, and the outlook for further M&A.”

In a research update to clients November 2, Stanley maintained his “Buy” rating and one-year price target $11.25 on DE stock, implying a return of 61 per cent at the time of publication.

The analyst thinks DE will post Adjusted EBITDA of $25-million on revenue of $142-million in fiscal 2023. He expects those numbers will improve to EBITDA of $34-million on a topline of $176-million the following year.

“DE now trades at 5.7x our F2024 adjusted EBITDA forecast, representing a modest discount to the 5.9x at which Exchange Income Corporation (EIF-TSX, Not Rated), though DE is now yielding 6.6% v. the 5.8% yield on EIF. Potential company-specific catalysts include the Q3 results early next week and further M&A activity. The stock is now testing the well-established uptrend that began two years ago, so support at current levels should be strong. As also shown on page 3, the relative strength line (top chart) shows that DE has outperformed EIF since mid-2020, but the pace of outperformance has accelerated since the beginning of F2023.”