Scott R. Henry, CFA of ROTH Capital Partners LLC commented in a September 3 research note that fundamentals are improving at medical device company Dynatronics Corp. (DYNT:NASDAQ), which designs, manufactures and sells physical therapy, rehabilitation, orthopedics, pain management, and athletic training products in the U.S. and to 30 countries globally.
The analyst advised that Dynatronics recently announced preliminary Q4/21 revenues of $12.1 million, which exceeded ROTH Capital Partners estimates of $10.7 million.
Analyst Henry noted that the latest quarter's results support the case that the firm is on pace to surpass its FY/22 revenue estimates of $35 million. ROTH mentioned that it is likely though that the higher projected revenues will probably be offset by some pressure on gross margins.
The analyst advised; however, that "the key breakout event for revenue/EPS remains an M&A event (likely in the next 18 months, in our opinion)."
ROTH Capital indicated that it is incorporating the pre-announced data into its valuation model and has revised its Q4/21 total revenue estimates from $10.7 million to $12.1 million, of which, approximately $9.7M is expected to be generated from continuing products revenue. ROTH's model will also be adjusted to reflect Dynatronics' roughly $1.2 million in restructuring costs and one-time gains of around $6.1 million related to employee retention credits, a facility sale, and a Paycheck Protection Program (PPP) loan in Q4/21.
The analyst pointed out that the upturn in revenues suggests a rebound in Dynatronics' core business. With continuing product revenue hovering in the $10 million range in Q4/21, ROTH is raising its FY/22 revenue estimates for Dynatronics from $35 million to $41 million.
ROTH added that despite the increase in projected revenues, it believes that gross margins remain challenged. Therefore, for FY/22 it anticipates that gross margin will come in at 30% versus its prior estimate of 35%. The reason for the drop in margins in the report was attributed to a combination of factors including supply constraints, inflation costs, and lower historical sales volumes. ROTH stated that it expects gross margins to increase in subsequent years.
The report noted that Dynatronics is now cash flow neutral-to-positive, and, if it decided to pursue favorable acquisitions, that might serve as a strong catalyst for an EPS and share price breakout. The company indicated that at the end of Q3/21 it held about $4.5 million in cash on its balance sheet along with an additional untapped balance of around $4.5M on its credit line.
Dynatronics Corp. is a medical device company based in Eagan, Minnesota. The firm markets its branded Bird & Cronin, Hausmann, Physician's Choice, PROTEAM, and Solaris products in the U.S. to athletic and sports medicine trainers, orthopedists, physical therapists, hospitals, clinics, and consumers and others, as well as online.
ROTH Capital Partners advised that it is maintaining its "Buy" rating for Dynatronics Corp. with a 12-month price target $2.10 per share. The analyst explained that the ROTH's price target of $2.10/share was derived by "applying a ~1.3x multiple to forecasted FY/22 revenues of $41M (adjusted for net debt and future estimated dilution)." The company's shares trade on the NASDAQ under the symbol DYNT and closed for trading at $1.35/share on September 3, 2021.
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Disclosures from ROTH, Dynatronics Corporation, Sept. 3, 2021
ROTH makes a market in shares of Dynatronics Corporation and as such, buys and sells from customers on a principal basis.
A Research Analyst and/or a member of the Analyst's household own(s) debt or equity securities of Dynatronics Corporation stock.
Shares of Dynatronics Corporation may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors.