15-AUG-16 – NV 5 Global (NVEE:BUY) Q2 Revenues increased 62% over the prior year, boosted by acquisitions. Organic revenue growth for the quarter was 9%. With our Adjusted EPS estimate for the year at $1.66, we maintain our BUY rating and $39 price target.

Q2:16 HIGHLIGHTS Gross Revenues increased 62% to $55.9 million, the highest for any quarter in NV5’s history. Organic revenue growth was 9% for the quarter, with the rest of the increase coming from acquisitions. Related acquisitions are a cornerstone of the Company’s strategy. The most recent acquisition was Dade Moeller, completed in May 2016, which is now a part of the Environmental vertical within NV5. The Company continued to bring new, higher-margin work into all service lines in the second quarter, which resulted in gross margins increasing to 47% from 45% in the prior year and a 12% sequential quarterly increase in backlog to $195.5 million. Backlog increased 67% from a year ago. EBITDA for Q2:16 was $6.0 million or 14% of Net Revenues, an increase of 71% over $3.5 million or 13% of Net Revenues for the same quarter of last year. Adjusted EPS for the quarter was $0.38 per diluted share, an increase of 23% from $0.31 per diluted share in the second quarter of 2015. During Q2:16, NV5 completed an offering of 1.955 million common shares for net proceeds of $47.2 million. Our Full Year 2016 estimates show Gross Revenues increasing 50% to $232.5 million and Adjusted EPS at $1.66. We continue to maintain a BUY rating and a price target of $39.

Earnings Season Bifurcation

As earnings season kicked into gear over the course of the second half of July, larger cap companies, which typically report earlier than their small cap peers, benefitted from company-specific drivers found in earnings reports. Small caps, on the other hand, remain subject to the whims of the macro winds as investors await earnings reports to come during the first two weeks of August. As these individual earnings reports are received, we expect quality small cap stories to find support in the marketplace, reversing July’s weakness.

Recapping the table above, for July, the S&P 500 was up 1.88%, the Russell 2000 was down 1.11% and the aggregate Singular List was down 6.25%. For the trailing twelve months, the S&P was up 6.45%, the Russell 2000 was up 4.6%, and the Singular Research List was down 7.5%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was Cambrex (CBM). The company supplies products to the pharmaceutical and biotech industries and recently delivered an outstanding Q2 earnings report. This prompted our analyst to revise our price target upward by over 22% to $63 from $51. Looking at the rest of our Top 5 performers, a common theme was that positive performance was driven by quality earnings reports. As we noted at the outset, we expect company-specific earnings reports to be the ultimate driver of long term price appreciation.

Our worst performers in July saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher. In particular, our worst performer was Seabridge Gold(SA). Although the company has had positive news flow recently, the shares tend to move up and down following the price of gold. As gold fell during the month, so did SA. Other names, such as VDSI and CMT, have been great performers in recent months and in July gave back some of those gains as momentum stocks fell out of favor.

At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

Small Caps Continue Their Strength

Against the seemingly eternal backdrop of Greek-EU discussions, small caps continued to outperform their larger cap peers.  Given that smaller companies tend to be less exposed to foreign issues such as disrupted end markets and currency swings, we find the outperformance to be no surprise.  Taking this approach one step further, astute stock picking, as evidenced by the outperformance of the Singular list during June, can generate meaningful alpha despite the negative macro chatter.

Beyond the macro theater, US economic conditions appear positive on the whole although not without some data points here and there that can muddle investors’ thinking.  Additionally, as the market had come to expect, the FED put off raising interest rates.  Going back a number of months, the market was initially expecting a hike in June, so this was certainly a positive for the market as many see the extension of low rates as providing more runway for the economy to gain steam.

Recapping the table above, for June, the S&P 500 was down 2.38%, the Russell 2000 was up 0.37% and the aggregate Singular List was up 3.14%.  For the trailing twelve months, the S&P was up 6.41%, the Russell 2000 was up 10.5%, and the Singular Research List was up 1.6%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was Salem Communications (SALM).  The company operates radio, print and internet media properties focused on “conservative” Americans.  As is the case with many media companies, election years see a surge in advertising revenues as candidates press their cases.  With campaign spending hitting astronomical levels and a crowded Republican field heading into 2016, we expect SALM to be a beneficiary.  Looking at the rest of our Top 5 performers, both SPCB and VDSI are “security” plays and their strong performance comes as no surprise given the proliferation of hacking and data breach incidents.

Our worst performers in June saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher.  In particular, our worst performer was Comstock Mining (LODE).  Although the company had no news during the month, gold trended lower and as a result, LODE did too.  VTNR saw its shares slide as the company conducted a large equity raise in order to shore up its balance sheet and satisfy a recent debt covenant amendment.

At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage.  There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge.  We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

Strong May Bodes Well

Pondering the old adage of “sell in May and go away” we also saw it noted on Bloomberg TV recently that when the market posts a positive May, the ensuing May to October period tends to produce positive returns.  Perhaps this boils down to May serving as a litmus test on the market’s opinion on year end and Q1 earnings reports which consume much of the February to May period.  If those reports are of a positive flavor and investors expect similar performance over the balance of the year, then they are likely to be post-earnings buyers, fueling a positive May with further follow-through as the summer progresses.

With this thought in mind, we see that May was positive for both large and small caps, with the Singular List outpacing both benchmarks.  Certainly some of this positive tone stems from the general consensus that the FED will not raise rates in June but as that specter still exists, we don’t believe it accounts for all the gain seen in May.  To wit, as we look at our coverage universe we see a variety of solid fundamental reasons for optimism.

Recapping the table above, for May, the S&P 500 was up 1.4%, the Russell 2000 was up 2.38% and the aggregate Singular List was up 2.41%.  For the trailing twelve months, the S&P was up 10.91%, the Russell 2000 was up 10.95%, and the Singular Research List was down 2.27%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was Vertex Energy (VTNR).  The company is finally seeing the light at the end of the tunnel following a rough stretch resulting from the recent slide in oil prices.  As we have noted in our research, we feel the company has quality management and the weakness we have seen marks a quality entry point for long term investors.  Looking at the rest of our Top 5 performers, Top Ideas for 2015 list member CMT appears again as a repeat top 5 name from last month.  Other names on the list saw gains primarily driven by quality Q1 earnings reports.

Our worst performers in May saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher.  In particular, our worst performer was Tessco (TESS), which reported fiscal Q4 results that were a disappointment.  Even so, our analyst remains confident in the long term potential for the company and feels the current weakness represents a buying opportunity.  Other names on our worst performers list, such as IGXT and LODE, are lower-priced stocks and thus a few penny price swing can drive a percentage move large enough to land the stock on our list despite the absence of anything negative.

At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage.  There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge.  We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

Small Caps Limp to the Finish Line

After remaining fairly level throughout much of April, small caps fell roughly 4% over the last four trading sessions of the month. While also down over the last few days of the month, larger caps did not suffer as severe a drop. Given that small caps have outperformed year to date, perhaps the move was something of a mean reversion. Additionally, the old adage “sell in May and go away” has begun making its rounds in the media. Investors hewing to this advice may have responded by closing out positions into the end of April.

Although the small cap index, as represented by the Russell 2000, fell into month end, there are still plenty of opportunities in the market. Most large cap companies have now reported Q1:15 earnings but small caps, on the other hand, often report in the first two weeks of May, ahead of the mid-month reporting deadline. With this in mind, identification of companies that are poised to deliver positive earnings reports offers opportunity to generate alpha.

Recapping the table above, for April, the S&P 500 was up 0.75%, the Russell 2000 was down 1.19% and the aggregate Singular List was up 1.89%. For the trailing twelve months, the S&P was up 10.11%, the Russell 2000 was up 4.88%, and the Singular Research List was down 5.56%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was recent initiation Supercom (SPCB). The company announced earnings results for its fourth quarter toward the end of March and the shares have continued to run since then, driven by continued attention on the internet security space. Looking at the rest of our Top 5 performers, Top Ideas for 2015 list member CMT appears again as a repeat top 5 name from last month. Other names on the list bucked the overall result for the Russell 2000, driven by a variety of factors.

Our worst performers in April saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher. In particular, our worst performer was Vertex Energy (VTNR). The company is required to issue new equity as part of its recent credit agreement modification. With that overhang present, investors have little near-term motivation to be buyers of the shares. We remain optimistic regarding the long term prospects for the business and view this issue as one which will be temporary.

At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

Small Caps Outperform

March seemed to bear out what many prognosticators have been calling for as small caps outperformed their larger peers, as noted in the table below. The strength of the US Dollar has been cited as a headwind for US companies that derive a meaningful portion of their revenues overseas as the translation of those sales back into US Dollars is negatively impacted by exchange rate movements. Small caps, on average, derive less revenue from export or overseas activities and thus don’t face this same headwind.

Beyond currency impacts, market participants continue to focus on the FED and whether or not an interest rate increase will be coming sooner or later. As we evaluate our coverage, our analysts are ever-mindful of the potential impact on those companies with leverage as well as the potential relative advantage of those with debt-free balance sheets.

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Recapping the table above, for March, the S&P 500 was down 1.70%, the Russell 2000 was up 1.39% and the aggregate Singular List was down 0.55%. For the trailing twelve months, the S&P was up 10.03%, the Russell 2000 was up 5.39%, and the Singular Research List was down 3.90%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was recent initiation KMG Chemicals (KMG). The company announced earnings results for its fiscal second quarter (year ending July 2015) which beat our estimates. With the recent announcement of an accretive acquisition we have increased our price target to $34 from $29. Looking at the rest of our Top 5 performers, Top Ideas for 2015 list member CMT has been faring well, driven by a positive earnings report too.

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Our worst performers in March saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher. In particular, our worst performer was SeaBridge Gold (SA). The company has issued recent updates that we feel are very positive with respect to the long term value of the business. We also recently hosted a non-deal road show with management and remain very bullish on the story, urging investors to take advantage of the recent move lower that had no fundamental cause.

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At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.

Sincerely,
Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

Markets Find Direction to the Upside

Both large and small caps posted solid returns in February as earnings season hit its stride. As is so often the case, outside factors such as geopolitical concerns and so forth recede while investors focus on whether or not companies in their portfolios are reporting results consistent with (or better than) their expectations. This was particularly telling in February as the FED appears set to begin raising interest rates soon yet the market took the news in stride. It remains to be seen what will happen once the news of earnings season fades and investors return their focus to issues such as the stability of the European Union and rising interest rates.

In this Directors Letter we are adopting a new format to encapsulate the performance of the Singular Coverage List relative to the performance of the SP&500 and the Russell 2000. We feel this table presents our results in a more concise form than before, where we reviewed the results in purely text form.

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Recapping the table above, for February, the S&P 500 was up 5.39%, the Russell 2000 was up 5.67% and the aggregate Singular List was up 2.94%. For the trailing twelve months, the S&P was up 12.83%, the Russell 2000 was up 4.4%, and the Singular Research List was down 3.69%.

As we noted at the outset, February market movements were driven primarily by earnings results in our opinion. As our table shows, the top performing company on the Singular List was INTL FC Stone (INTL). The company announced earnings results for the second quarter of their fiscal 2015 which easily outpaced our estimates. The business looks to be firing on all cylinders while a recent acquisition will help round out the company’s offerings. As noted during the earnings call, management assumes no synergies in developing its acquisition criteria. Thus, any potential cross-selling gains will be icing on the cake. Looking at the rest of our Top 5 performers, BLX was also up following its earnings report while NNBR benefited from a positive analyst day outlook.

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As with our top performers, our worst performers in February saw their monthly returns driven primarily by their respective earnings reports. Both EAC and FHCO declined as their earnings reports failed to impress. SELL-rated VMC posted better than expected results, driving shares higher.

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At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

Bouncy Ride Continues

January saw the market under pressure as participants focused on the year ahead and the impact of factors such as commodities prices, European Union issues, and currency impacts.  US companies with substantial overseas operations, typically larger companies, must grapple with the impact of a stronger dollar which makes their products less attractive to foreigners on a price basis while also reducing the translated US dollar revenues when the books are closed.  Conversely, smaller companies tend to have less of this exposure, not because they don’t desire to expand their reach overseas but often simply due to their lack of ability to do so at their current size and scale.  This dynamic is a key reason many pundits look for small caps to outperform larger caps in 2015.

An additional factor influencing share prices is that of commodity prices, specifically oil and natural gas.  Natural gas prices are a key cost for many businesses, especially industrials, as natural gas is used to run things like furnaces.  With the gas decline occurring a bit after the oil decline we expect the financial impact to be felt more in Q1 and beyond.  Oil prices have a significant impact on the price of gasoline and we have all seen the dramatic drop in gas prices as oil fell.  This has translated into more money in the pocket of consumers although that has yet to manifest into growth in retail sales as December figures surprised to the downside, which likely played a part in the lack of direction in the market in January.  For many, declining gasoline prices appeared to be a cinch to spur retail sales.  Where this hasn’t been the case, the market finds itself a bit confused.

For January, the S&P 500 was down 3.1%, the Russell 2000 was down 3.2% and the aggregate Singular List was down 5.5%.  For the trailing twelve months, the S&P was up 11.5%, the Russell 2000 was up 3.1%, and the Singular Research List was down 4.2%.

As most small caps don’t begin to report earnings until later in the cycle, January was a light month in terms of corporate news with respect to the Singular Research coverage universe.  As our table shows, the top performing company on the Singular List was Comstock Resources (LODE).  The company announced an expanded operating permit early in the month along with additional favorable news in concert with its earnings at the end of the month.  Our analyst is optimistic that the company will reach profitability in Q1:15, which is earlier than previously expected.

As with our top performers, our worst performers in January were also from a variety of industries and with a range of reasons for the declines.  In particular, ADES continued to experience significant issues with its financials as the company changed auditors yet again.  With no end in sight to the ongoing issues here we terminated coverage.

At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage.  There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge.  We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer