Wolfe Research Upgrades SmileDirectClub Inc. (SDC) to Peerperform, Says Strategic Shift Paying Off
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(Updated - September 9, 2020 6:29 AM EDT)
Wolfe Research analyst Steve Beuchaw upgraded SmileDirectClub Inc. (NASDAQ: SDC) from Underperform to Peerperform with a price target of $10.00.
The analyst comments "We are upgrading SDC to reflect: 1) traction with the wholesale channel initiative; 2) revenue upside on DSO partnerships; 3) sustainable operating efficiencies associated with manufacturing upgrades and the new small-footprint commercial model. SDC has been the worst performing stock in our coverage since COVID concerns hit the market in late January, -23% vs. Dental -3%, as COVID-19 forced store closures and pressured consumer spending. During that time, the company has eliminated inefficient marketing spend on storefronts, reached traction with the WMT initiative, and had a signature win with a DSO partnership (Smile Brands). We raise aEBITDA in ’22 by 100% and are now 50% above consensus to reflect these changes and strategic actions. We roll forward our PT to year-end ‘21, using a 25x EV/EBITDA multiple on $173mn 2022E aEBITDA, less a discount for the risk of regulatory costs (Exhibit 20). The 25x multiple we use is a discount to the fast growth healthcare peer group avg. of 37.7x EV/’22 EBITDA (Exhibit 19), reflecting SDC’s more modest growth and the uncertainty around new initiatives. Our longer-term optimism on SDC is now higher as new commercial channels are bearing fruit; the recent move in the stock up 35% in the last week clearly prices in much of this progress. Near-term, tougher macro trends and uncertainty on the pace of DSO traction ahead of survey diligence are sources of conservatism on our target multiple."
Shares of SmileDirectClub Inc. closed at $10.68 yesterday.
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