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Basch Report
Jax Daily Record Thursday, Feb. 25, 202105:10 AM EST

Dream Finders Homes stock cools off

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Analysts see the market price as too high after its IPO surge.
by: Mark Basch Contributing Writer

Dream Finders Homes Inc.’s initial public offering was a smash hit on Wall Street, with the stock more than doubling in price when it began trading a month ago.

But as analysts weighed in last week with their first reports on the Jacksonville-based homebuilder, the stock cooled.

Three analysts rated it at the equivalent of a “hold” and another rated it as “underperform.”

Dream Finders sold 11.04 million shares of Class A common stock at $13 each and the stock jumped higher immediately when it began trading Jan. 21. It eventually reached a high of $31.98 two weeks ago.

The analysts have a high opinion of the company but think its market price has been too high since the IPO.

“DFH represents an attractive asset-light growth story, with a significant above-market growth ramp over the next several years as it scales off a relatively low base,” RBC Capital Markets analyst Mike Dahl said in his report.

“That said, valuation already reflects robust growth with little execution risk. We expect volatility given the limited float and higher leverage, and await a better entry point,” he said.

Dahl rated the stock at “sector perform” with a $22 price target.

“Since its founding in 2009 in Jacksonville, Florida, DFH has steadily grown annual revenues while posting a profit every year,” said Wedbush analyst Jay McCanless.

“The company’s historical focus on first time and first move up homes is on trend with current demand patterns,” and recent acquisitions will help grow revenue and earnings, he said.

McCanless said without additional acquisitions, he expects 2022 results to “reflect the true earnings power of DFH and provide, in our view, a better basis for evaluating and developing our price target.”

McCanless rates the stock at “neutral” with a $21 price target.

Analysts at BTIG Research also rated the stock at “neutral,” according to investing website MarketBeat, but the firm did not respond to requests for the initiation report.

MarketBeat said Bank of America analysts rated Dream Finders at “underperform” with a $17 price target. Bank of America does not provide research reports to the media.

Dream Finders’ stock dropped $3.96 to $24.90 on Feb. 16 when the first analyst reports were issued.

Black Knight earnings increase

Black Knight Inc. reported higher fourth-quarter earnings last week as the Jacksonville-based company continued its dominance of the mortgage technology market.

Adjusted earnings rose by 6 cents a share to 60 cents and revenue of $342.1 million grew 4.4% organically, excluding the impact of three acquisitions during the year.

“Throughout 2020, we maintained positive momentum across all lines of business and finished the year with a very solid fourth quarter,’” CEO Anthony Jabbour said in Black Knight’s quarterly conference call with analysts.

“This performance further demonstrates our ability to deliver for our clients and shareholders even in the toughest environments,” he said.

Black Knight’s main business is providing processing services for mortgage lenders and Jabbour said the company now is processing 64% of U.S. first mortgage loans.

Black Knight is projecting revenue to grow 5% to 7% organically to between $1.394 billion and $1.422 billion in 2021.

Adjusted earnings are forecast between $2.11 and $2.22 a share this year, compared with $2.11 in 2020.

Susquehanna Financial Group analyst Jack Micenko upgraded his rating on Black Knight from “neutral” to “positive” after the earnings report.

Micenko said in a research note the stock had been down 13% since Black Knight released third-quarter earnings while the S&P 500 was up 11% over that time period.

“We see the current disconnect as an opportunity – the business model is unchanged given the 90%-plus recurring revenue mix and industry-leading EBITDA margins, and now growth is reaccelerating after a transition year in 2020,” he said.

CoreLogic gets another bid

Just when you thought the battle for control of housing data firm CoreLogic Inc. was over, another bidder emerged.

Commercial real estate data firm CoStar Group Inc. last week sent an unsolicited proposal to buy CoreLogic for CoStar stock valued at $95.76 a share.

Two weeks earlier, CoreLogic agreed to a buyout for $80 a share in cash by funds managed by Stone Point Capital and Insight Partners.

Cannae Holdings Inc., the investment firm spun off from Jacksonville-based Fidelity National Financial Inc., and Senator Investment Group made an unsolicited bid to buy CoreLogic in June 2020. CoreLogic rejected the offer but it started a process that brought in other bidders.

CoreLogic said last week the merger agreement with Stone Point and Insight remains in effect but it will review CoStar’s proposal.

ADS adds revenue, expenses to Waste Management

Advanced Disposal Services Inc.’s business added $205 million to Waste Management Inc.’s fourth quarter revenue, after Waste Management completed its $4.6 billion acquisition of the Ponte Vedra-based company at the end of October.

But Waste Management also said the acquisition increased operating expenses as a percentage of revenue by 0.4 percentage points in the quarter.

In Waste Management’s conference call with analysts last week, Chief Operating Officer John Morris said the Houston-based company already is making progress on achieving cost savings after the merger of the two waste services companies.

“We did have the benefit of a longer time frame getting ready for it,” Morris said, according to a transcript posted by the company. 

“I would tell you that I think we’re exactly where we should be, in fact, probably a little bit ahead,” he said.

The merger took 18 months to complete as the companies resolved antitrust issues with federal and state regulators.

“Part of the reason that this took as long as it did was COVID-related. Part of it was just the complexity of it. I mean it was a complex transaction in a space where both companies played a major role,” CEO James Fish said in the conference call.

He said it was complex because Waste Management is the largest waste services company in the U.S. and Advanced Disposal was the fourth largest, so the company had a lot of discussions with the U.S. Department of Justice to gain approval.

The addition of Advanced Disposal’s business in the last two months of the quarter brought total revenue for the quarter to $4.07 billion.

GEE Group sees favorable trends for staffing industry

GEE Group Inc. last week said revenue of $34.6 million for the first quarter ended Dec. 31 was 8% lower than the previous year. 

The Jacksonville-based staffing company said revenue grew 11.7% from the fourth quarter of fiscal 2020 as its business improves from the impact of the COVID-18 pandemic.

GEE Group had a net loss of 2 cents a share in the first quarter, compared with a loss of 27 cents the previous year.

CEO Derek Dewan said in a news release that the new normal of the labor market could help GEE Group.

“We expect much greater usage of flexible, on-demand labor to satisfy the human resource needs of corporate America. This provides very favorable conditions for our Company and the staffing industry as a whole,” he said.

Dewan said the company’s priorities in 2020 “include making strategic acquisitions and taking actions that will optimize its capital structure, improve its balance sheet and increase GEE Group’s profitability.”

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