KeyStone’s Stock Talk Podcast Episode 142
This week in Our Case For / Case Against debate we take a look at Care Cloud (MTBC: NASDAQ), a healthcare information technology company that provides a full suite of proprietary cloud-based solutions, together with related business services, to healthcare providers and hospitals throughout the United States. Brennan argues the bull case, I crush him with the bear case and Aaron sits in as judge, jury, and executioner.
In our Your Stock, Our Take Segment, we answer a listener question on Northland Power Inc. (NPI: TSX), a renewable power producer which owns 2.3 GW net of generating capacity. Most of Northland’s power is offshore wind but the company also has a pipeline of onshore renewable assets. We take a look at current valuations and the company’s growth prospects into the future.
Common Mistakes:
Acting like a trader
For the average investor, trading is a bad idea. How can you identify if you are trading too much? If you see hundreds of trades each month, or even year – this is too much movement in most cases. Even 50+ trades in a year can be symptomatic of something wrong for the average long-term investor. Either you are buying the wrong stocks, or you do not have a realistic time horizon (holding period in mind). In our June 2020 Webinars, we put together an entire section on Day Trading – using empirical studies. The findings from the most recent: “It is virtually impossible for individuals to day trade for a living. The study found that 97% of all individuals who Day Traded for more than 300 days lost money. Those are not good odds.
As an investor, stocks you buy should be with the goal of holding the stock for 2-5 years – or really as long as possible as long as the business continues to perform.
FOR & AGAINST
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Care Cloud (MTBC:NASDAQ)
Current Price: $8.20
Market Cap: $102.4 Million
Care Cloud is a healthcare information technology company that provides a full suite of proprietary cloud-based solutions, together with related business services, to healthcare providers and hospitals throughout the United States.
Its Software-as-a-Service (“SaaS”) platform includes:
- revenue cycle management (“RCM”)
- practice management (“PM”)
- electronic health record (“EHR”),
- business intelligence
- patient experience management (“PXM”)
- telehealth
For Case:
- Care Cloud operates in the exciting space of Healthcare Information Technology and provides a wide set of Software as a Service solution to healthcare providers, which is attractive.
- Great fundamentals, where revenue grew to $105 million or 63% in fiscal 2020 compared to fiscal 2019. Adjusted EBITDA grew to $10.9 million or 34% over 2019. Plus, the company has a cash-rich balance sheet with approximately $9.5 million in net cash.
- The company anticipates growth to continue, providing 2021 Adj. EBITDA guidance of $23.5M. – which equates to ~115% growth from 2020.
- The company trades at a reasonable EV/EBITDA multiple, with a trailing figure of 25x and a forward multiple of just 11.5x.
- To sum it up, exciting space, SaaS revenues, solid fundamentals, good expected growth in 2021, and last but not least trade at a reasonable price.
Few notes to discuss afterward:
- On the surface, Brennan’s case paints a beautiful picture for CareCloud, unfortunately, that beauty is only skin deep.
- While the growth outlook is impressive, the capital structure is not. CareCloud has funded its growth through the issuance of preferred shares, which pay a pricy coupon of 11%. In 2020, the company generated Funds from Operation of $10.92 million – sounds great, but they paid out $13.9 million in preferred dividends. Adjusted EBITDA is misleading as the huge interest burden the prefs create is pushing actual cash earnings negative.
- While the growth guidance looks great, I point out that management Downgraded 2020 adjusted earnings guidance from $12-$13 million to $10-$12 million late in 2020, bringing into question the level of weight one should put on the current year guidance.
- At present, the stock is not cheap sporting a generous EV/EBITDA of 25, with a history of negative operating income.
- And to top it off, the CEO is leaving and no dedicated replacement has been named. Capital structure matters, in this case, the pricy prefs prevent purchase – alliteration at its finest.
Your Stock, Our Take
Northland Power Inc. (NPI: TSX)
Current Price: $43
Market Cap: $9.7 Billion
What does the company do?
Northland Power is a renewable power producer and owns a 2.3 GW net of generating capacity. The company also has a significant inventory of early to mid-stage development projects which could add an additional 4 to 5 GW of capacity. Most of Northlands power is offshore wind and they also own onshore renewable assets.
Key Points:
The has executed a very aggressive growth strategy for years. This strategy has generally prioritized growth in the size of the company over accretive growth in per-share earnings and cash flow.
Recently, on April 14th, announced an agreement to acquire a portfolio of 540 megawatts (MW) in Spain for a total cost of about C$1.1 billion. This is a large acquisition for the company. The cash flow from these assets is contracted and predictable and Northland expects the transaction to be immediately accretive to free cash flow per share but did not specify how much.
Recent Financial Performance
- The Q4 financial results were released on February 22nd.
- Revenues in 2020 increased 24% to $2.06 billion and adjusted EBITDA increased 19% to $1.17 billion.
- Adjusted free cash flow per share increased 6% to $2.09.
- Northland has provided 2021 guidance of adjusted free cash flow in the range of $1.80 to $2.00 per share…4% to 14% lower than 2020.
- The company’s large pipeline of potential development projects, if developed, could increase gross capacity by at least 4 to 5 GW and would require a net capital investment of $10 to $14 billion over the next five years. These projects, once operational by the latter half of the decade, are expected to more than double the company’s adjusted EBITDA.
Conclusion
Northland has benefited from the trend toward renewable power and de-carbonization. We expect this trend to continue.
The aggressive growth strategy has been focused on increasing the overall size of the company and less on growing per share earnings and cash flow. That said, free cash flow per share has been growing, just at a lower rate…in the last couple of years specifically, the growth in per-share cash flow has really slowed. Guidance for 2021, puts cash flow per share where it was in 2019, in spite of adjusted EBITDA increasing almost 30%.
Investors need to consider that when the growth strategy targets 100% growth in EBITDA over the next 5 to 10 years that the per share growth in cash flow will be much lower.
Overall, it’s a solid business with an attractive theme with stable cash flow. I would like to see more of a focus on per share growth. It’s not particularly cheap at 22 times expected 2021 free cash flow. In the near term, it looks fairly valued to me but over a longer-term, 5-to-10-year time horizon, the company could continue to do well, particularly if it produces better, per share, accretive growth from its development portfolio and acquisition.
Free cash flow per share
2021e: $1.90
2020: $2.09
2019: $2.01
2018: $1.90
2017: $1.46
2016: $1.40
