21Q4 Results Below Expectations, Lowering 2022 Estimates, Reducing Rating and Price Target
Mistras Group reported 21Q4 EPS of $0.00, slightly worse than 20Q4’s $0.01 and below my estimate of $0.06. Revenues of $171.2 million were 6.5% above the year earlier period and better than I expected. Despite the higher revenues, income from operations declined by 50% compared with the prior year. Against my projections, Mistras’s revenues were higher, but operating costs were much higher.
The 21Q4 results exceeded management’s expectations on revenues; but were below its implied guidance on earnings. This is the second quarter of sequential revenue and profit declines. As the pandemic recedes, it appears that Mistras’s recovery has stalled. Management expects that the company’s performance will improve in 2022, but expected delays in scheduled maintenance at refineries and tough prior-year cost comparisons in the first half of 2022 will probably delay a meaningful improvement until the second half of the year.
The stock has performed poorly since I initiated coverage in December. Year-to-date, the stock is down 18.4%, worse than the 10.7% decline in the S&P Small Cap 600 Industrial sector. It is still in a downtrend with no bottom yet in sight. The underperformance is probably due to the disappointing 21Q4 results and the backloaded 2022 earnings guidance, but concerns about a potential weakening in the global economy are also a likely contributing factor.
Based upon the tepid first half earnings outlook, I have reduced my 2022 EPS estimate from $0.63 to $0.40 and established a 2023 estimate of $0.51. I am also reducing my 6-12 month performance rating one notch to “2” (outperform) and cutting my price target from $9.00 to $7.00. The revised price target represents a potential forward earnings multiple of 13.7 times projected 2023 earnings.
Mistras’s share price is likely to languish unless and until the company’s financial performance gets back on a recovery path. As long as its 2022 first half performance shows no further deterioration, though, there should not be much more downside in the stock. Ideally, I hope to see signs of stabilized financial performance over the next two quarters, which should put a floor on the stock price and set the stage for a rebound. If indeed better performance takes hold in the 2022 second half, the stock should begin to recover. As with the rest of the market, an end to the war in Ukraine should also help the stock.
April 18, 2022
Stephen P. Percoco
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