Wolfe Research Upgrades SmileDirectClub Inc. (SDC) to Peerperform, Says Strategic Shift Paying Off

September 9, 2020 6:28 AM EDT
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Price: $6.26 -3.25%

Rating Summary:
    3 Buy, 8 Hold, 4 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 8 | Down: 13 | New: 22
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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."

For an analyst ratings summary and ratings history on SmileDirectClub Inc. click here. For more ratings news on SmileDirectClub Inc. click here.

Shares of SmileDirectClub Inc. closed at $10.68 yesterday.


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