Analyst sees Redwire as space winner

He rates the stock a “buy” despite the company lagging its “de-SPAC” projections of $1.4 billion in 2025 revenue.

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  • | 12:00 a.m. April 27, 2023
The Redwire booth at the Space Foundation Space Symposium in Colorado Springs, Colorado. Started in 1984, the event brings “space leaders from around the world to discuss, address, and plan for the future of space.”
The Redwire booth at the Space Foundation Space Symposium in Colorado Springs, Colorado. Started in 1984, the event brings “space leaders from around the world to discuss, address, and plan for the future of space.”
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Mike Crawford, senior equity research analyst and head of the Discovery Group at B. Riley Securities, is not discouraged that Redwire Corp. isn’t living up to the lofty revenue projections it made two years ago.

Crawford is encouraged enough by what the Jacksonville-based space technology firm is doing now that he initiated coverage of Redwire with a “buy” rating.

“Redwire, a global leader in space infrastructure, literally serves an addressable market that is out of this world,” Crawford said in his April 20 initiation report.

Mike Crawford, senior equity research analyst and head of the Discovery Group at B. Riley Securities

“We believe Redwire is on a shortlist of winners in the new space economy, fueled by a strong portfolio of proprietary products and a healthy $465 million backlog,” he said.

Redwire went public in 2021 by merging with a special purpose acquisition company, or SPAC, called Genesis Park Acquisition Corp. The process of a private company going public by merging with a blank check company like Genesis is called a “de-SPAC.”

“Redwire, like many of its de-SPAC brethren, is still struggling to regain credibility after going public with heady intentions and lofty guidance, which in Redwire’s case included a July 2021 ‘expectation’ for $1.4 billion revenue in 2025 — a far cry from the mid-$300 million level we believe the company can generate organically with current assets,” Crawford said.

“While many de-SPAC wounds were, in our opinion, self-inflicted by over-eager boards and sponsors seeking additional capital to fuel business plans, in Redwire’s case, we recognize that many commercial customers two years ago believed they would be receiving hundreds of millions, if not billions, of dollars in capital to fuel their own business plans,” he said.

“When this capital failed to materialize or dissipated, so too did much of Redwire’s near-term pipeline of potential commercial business, as it aims to arm potentially high-growth enterprises with the systems and components required to push humanity’s reach into space.”

Although revenue expectations are much lower now, Crawford still likes what he sees.

“Longer term, however, we are confident that Redwire can sustain a healthy double-digit top-line growth rate while likely driving EBITDA margins into the high teens given operating leverage and the proprietary nature of its solutions,” he said.

Crawford has a $5 price target for the stock, which was trading at $3.01 when he issued his report.

Crawford is the second analyst to begin covering Redwire. Jefferies analyst Greg Konrad also rates the stock as a “buy.”

Blockchain Moon is shutting down

SPACs were a hot trend on Wall Street two years ago but that market has cooled considerably.

In fact, a Jacksonville-based SPAC announced April 21 it is going out of business.

Blockchain Moon Acquisition Corp. said it will dissolve and liquidate the company because of its inability to complete a merger within 18 months of its initial public offering.

As the name implies, the company was seeking targets involved in blockchain technology.

It did reach an agreement in October 2022 to acquire DLTx ASA, an Oslo, Norway-based company developing blockchain technology.

However, Blockchain Moon disclosed in a March 15 Securities and Exchange Commission filing that the agreement was terminated, without giving more details.

Blockchain Moon sold 10 million units, consisting of one share of stock and rights to receive and purchase additional stock, for $10 each in its October 2021 IPO.

The company said it will redeem all shares of common stock outstanding for about $10.49 each as it liquidates.

Blockchain Moon listed its headquarters office at 4651 Salisbury Road on Jacksonville’s Southside in SEC filings but it had no full-time employees.

Analysts encouraged by CSX results

CSX Corp.’s stock rose April 21 after the Jacksonville-based railroad company reported better-than-expected first-quarter earnings, and some analysts said they are encouraged by the early returns from CEO Joe Hinrichs.

“With all the external developments across the U.S. Class I rails over the past three months (management changes, M&A, safety issues, etc.), we simply believe CSX may be the ‘least distracted’ railroad in North America,” Raymond James analyst Patrick Tyler Brown in a research note.

“We also remained intrigued by the possibilities with newly minted CEO Hinrichs and his clear focus on customer service and the employee experience,” Brown said as he reiterated his “outperform” rating on the stock.

Hinrichs joined CSX in September and has focused on improving relations with employees under a “One CSX” initiative that began before his arrival.

Brown said One CSX is a “maybe underappreciated” driver of the company’s improved performance.

“So far, it is evident that this, somewhat straightforward, strategy has proved fruitful, not only from a service perspective, but also translating to strong financial results to kick off 2023,” he said.

BMO Capital Markets analyst Fadi Chamoun also reiterated an “outperform” rating after the first-quarter report.

“The positive trends in service levels are supportive of stronger cost performance over the coming quarters as well as volume share gains that should help mitigate against the current weak macro backdrop,” Chamoun said in his note.

“More importantly, commercial development efforts are yielding positive results and the company’s backlog of growth opportunities over the medium-term continues to grow,” he said.

Some analysts were more cautious on the outlook for CSX in the current economic environment.

Morgan Stanley analyst Ravi Shanker said the first quarter was “a solid beat in what is likely to be a sea of red” in earnings, but he maintained an “equal weight” rating.

“We are encouraged to see the management team continue to push on growth opportunities and new CEO Hinrichs will no doubt be instrumental in converting these opportunities but as per management’s own commentary, this could take a while to materialize as new projects come online and it remains to be seen if there is continued net loss of volumes,” Shanker said in his note.

Susquehanna Financial analyst Bascome Majors remained “neutral” on the stock because of broader concerns for the rail industry, but he raised his earnings estimates for CSX.

“CSX’s strong start and credible view that some momentum carries into 2Q drive our conservative forecasts higher, despite the intermodal-led volume cut (we were already there),” Majors said in his note.

CSX rose as much as $1.46 to $32.27 on April 21 after the earnings report.

J&J Vision contact lens sales grow

Johnson & Johnson Vision sales were impacted in the first quarter by continued supply chain challenges and unfavorable foreign exchange rates on its international sales.

However, the Jacksonville-based subsidiary of the medical products giant continued to grow sales of contact lenses and surgical products.

Total vision sales rose 3.4% to $1.3 billion but when adjusted for the currency impact, sales rose 7.6% operationally.

Sales of contact lenses rose 4.7% to $953 billion and jumped 9.3% when adjusted for currency.

“Global growth of 9.3% in contact lens and other reflects continued penetration of our Acuvue Oasys 1-day family of products, including the recent launch of Acuvue Oasys Max 1-day, strong commercial execution and strategic price actions,” said Jessica Moore, vice president of investor relations, in Johnson & Johnson’s April 18 conference call with analysts.

Johnson & Johnson employs about 4,200 people at its Deerwood Park campus on Jacksonville’s Southside, where it makes contact lenses and maintains the vision subsidiary headquarters.

New Jersey-based Johnson & Johnson reported total sales rose 9% operationally to $24.8 billion in the first quarter, but adjusted earnings of $2.68 a share were only one cent higher than the first quarter of 2022.

Johnson & Johnson moved closer April 24 to its planned spinoff of its consumer products business, called Kenvue Inc.

The company launched a roadshow to promote Kenvue to investors and said it intends to sell about 151 million shares at $20 to $23 each.

Johnson & Johnson will still own more than 90% of the business after the spinoff.

Kenvue’s business includes iconic consumer brands Tylenol, Listerine and Band-Aid.

Johnson & Johnson first announced plans for the spinoff in November 2021.

Insulin pump approval prompts Medtronic gains

Medtronic plc, another global medical products giant with a subsidiary based in Jacksonville, rose April 24 after the U.S. Food and Drug Administration approved the company’s insulin pump system to treat diabetes.

Two analysts raised their rating on the Dublin-based company after the approval.

Barclays analyst Matt Miksic said the FDA action “provides a favorable outcome to one of the issues keeping us on the sidelines” as he raised his rating from “equal weight” to “overweight” on the stock.

“We expect the stock to react positively to the news, and with fiscal fourth-quarter results and the fiscal 2024 outlook about four weeks away, we think it’s time to get more constructive on the stock,” Miksic said in his research note.

Wells Fargo analyst Larry Biegelsen also raised his rating from “equal weight” to “overweight” and said Medtronic should benefit from improving trends among medical technology companies.

“Thus far, the companies that have reported Q1 2023 results have exceeded Street estimates,” Biegelsen said in his note.

“Based on our checks and public company commentary, we believe the underlying medtech markets are improving as staffing shortages ease and major markets such as the US, Europe and China move past covid. We see a backlog of deferred procedures coming through over the next year or so,” he said.

Medtronic’s stock rose $3.96 to $89.69 on April 24, a 4.6% gain which CNBC reported was its best day since November 2020.

Miksic raised his price target on the stock from $89 to $104 and Biegelsen set a price target of $100.

Medtronic’s Jacksonville division makes surgical instruments for ear, nose and throat physicians.