Everyone across the globe had to find their own way of dealing with the pandemic and XpresSpa (XSPA) came up with a novel solution; the company turned its closed airport wellness business into Covid-19 testing centers.
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It’s an idea that has evidently borne fruit; following the company’s impressive 3Q21 results, H.C. Wainwright’s Scott Buck thinks investors should “use the current dislocation in share price to accumulate XSPA shares ahead of improving operating results and news flow.”
In the quarter, the company generated revenue of $26.8 million, far above Buck’s $10 million estimate. Gross margin, or store margin, hit 49.0%, far better than the ~20% average pre-COVID XpresSpa store margin, and once again well ahead of Buck’s 10.8% estimate. As a result, the company generated adj. EBITDA of $8.7 million, which compares nicely to Buck’s anticipated adj. EBITDA loss of $2.7 million and is a significant improvement on the adj. EBITDA loss of $5.1 million in the same period a year ago.
As well as profiting off the seasonally stronger summer travel months, the company is benefiting from a “heightened” demand for testing services. The good news is that this is a trend Buck does not foresee reversing anytime soon.
“We believe these favorable testing trends should continue as international travel has accelerated and testing remains a key component in slowing the spread of the COVID virus,” the 5-star analyst said. “Further, we suspect testing requirements are likely to remain in place for some time. Elevated levels of testing at XpresCheck locations, coupled with the reopening of additional spa locations and the opening of the first Treat location during 4Q21 suggest positive momentum is carrying into 2022.”
Accordingly, the strong results merit a rethink of Buck’s model, which gets a “meaningful” makeover. The analyst now expects 2021’s revenue haul to come in at 64.3 million, up from the prior $39 million estimate and above XpresSpa’s prior target of $60 million.
Further bolstering sentiment, given what the analyst believes is a “significant valuation dislocation,” Buck expects the company will shortly ramp up its share repurchase program.
The strong performance also merits a new price target, which rises from $3.5 to $4, suggesting shares will appreciate by a mighty 176% in the year ahead. No need to add, Buck’s rating stays a Buy. (To watch Buck’s track record, click here)
Buck might think XpresSpa is flying under investors’ radar, but it appears the company has gone by unnoticed by Buck’s colleagues too, as he is currently the only review on record. (See XSPA stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
