BUSINESS
Spok Holdings, Inc., through its subsidiary, Spok, Inc., provides healthcare communication solutions in the United States, Europe, Canada, Australia, Asia, and the Middle East. It delivers clinical information to care teams when and where it matters to enhance patient outcomes. The company offers subscriptions to one-way or two-way messaging services; and ancillary services, such as voicemail, and equipment loss or maintenance protection services, as well as sells devices to resellers who lease or resell them to their subscribers. Its Spok Care Connect platform enhance workflows for clinicians and support administrative compliance. In addition, the company provides professional, software license updates, and product support services, as well as sells third-party equipment.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, SPOK is expected to continue to be a Value Builder.
Spok Holdings has a current Value Trend Rating of B (Positive).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Spok Holdings has a slightly negative Appreciation Score of 34 but a very high Power Rating of 94, with the Positive Value Trend Rating the result.
Spok Holdings’ stock is selling at targeted value. The current stock price of $15.56 compares to targeted value 12 months forward of $16.
This moderately low appreciation potential results in an appreciation score of 34 (66% of the universe has greater appreciation potential.)
Spok Holdings has a Power Rating of 94. (SPOK’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 6% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; the recent trend in SPOK’s earnings estimates has been extremely favorable; and the RadioTelephone Communications comparison group is currently in a modestly favorable position.
INVESTMENT PROFILE
SPOK’s financial strength is low. Financial strength rating is 27.
Relative to the S&P 500 Composite, Spok Holdings Inc has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that SPOK is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, low expected growth, low historical growth, and high earnings variability. SPOK’s valuation is low: high dividend yield, moderate P/E ratio, and low price/book ratio. SPOK has unusually low market capitalization.
CURRENT SIGNALS
Spok Holdings’ current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.
Spok Holdings’ current technical position is very strong. The stock price is in a 1.9 month up move. The stock has appreciated 20.1% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Marginal negative changes in Spok Holdings Inc (NASDAQ: SPOK) fundamentals have recently occurred: significant quarterly earnings deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of B. This review will be completed in the next several days.
Spok Holdings Inc (NASDAQ: SPOK) has reported E.P.S. of $0.17 for its fourth fiscal quarter (ending December 31) versus $1.23 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $0.79 compared to $1.11 a year ago.
Spok Holdings Inc (NASDAQ: SPOK) stock closed at $15.56 on 2/21/24 after a modest gain of 0.7%. Moreover, unusually high trading volume at 164% of normal accompanied the advance. The stock has declined -10.0% during the last week but has been exceptionally strong relative to the market over the last nine months.
CASH FLOW
In 2022, Spok Holdings experienced a very significant reduction in cash of -$23.83 million (-40%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$11.14 million. Non-operating uses consumed -$6.57 million (-59% of EBITDA). Cash taxes contributed +$20.86 million (+187% of EBITDA). Re-investment in the business amounted to -$24.20 million (-217% of EBITDA). On a net basis, debt investors received -$1.59 million (-14% of EBITDA) while equity investors pulled out -$23.47 million (-211% of EBITDA).
Spok Holdings’ Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Spok Holdings Peer Group. In most years, Spok Holdings was in the lower quartile and top quartile. Currently, Spok Holdings is lower quartile at -59% of EBITDA (-$6.57 million).
Spok Holdings’ Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Spok Holdings Peer Group. In most years, Spok Holdings was in the top quartile and lower quartile. Currently, Spok Holdings is upper quartile at +187% of EBITDA (+$20.86 million).
Spok Holdings’ Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Spok Holdings Peer Group. (Since 2020 Business Re-investment, %EBITDA has experienced a very sharp decline.) In most years, Spok Holdings was in the top quartile and lower quartile. Currently, Spok Holdings is substantially below median at -217% of EBITDA (-$24.20 million).
Spok Holdings’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Spok Holdings Peer Group. In most years, Spok Holdings was in the third quartile and second quartile. Currently, Spok Holdings is below median at -14% of EBITDA (-$1.59 million).
Spok Holdings’ Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Spok Holdings Peer Group. In most years, Spok Holdings was in the lower quartile and third quartile. Currently, Spok Holdings is lower quartile at -211% of EBITDA (-$23.47 million).
Spok Holdings’ Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Spok Holdings Peer Group. In most years, Spok Holdings was in the top quartile and lower quartile. Currently, Spok Holdings is lower quartile at -214% of EBITDA (-$23.83 million).
Spok Holdings’ Cash, %Revenue has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Spok Holdings Peer Group. (Since 2016 Cash, %Revenue has acccelerated.) In most years, Spok Holdings was in the top quartile. Currently, Spok Holdings is above median at +27%.
PROFITABILITY
Spok Holdings’ return on equity has eroded very significantly since 2013. The current level is 22.1% versus the high of 10.2% and the low of -22.0%.
A major analytical focus for SPOK is a very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors.
The productivity of Spok Holdings’ assets remained stable over the full period 2013-2023: asset turnover has exhibited little to no overall change.
Additionally, pretax margin experienced a strong overall downtrend even as it experienced a very sharp recovery after the 2021 low.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Spok Holdings’ return on equity is upper quartile (22.1%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is substantially above median (9.3%) reflecting asset turnover that is at the upper quartile (0.61X) and pretax margin at the upper quartile (15.3%).
Tax “keep” rate (income tax management) is upper quartile (172.3%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.37X).
GROWTH RATES
Overall, Spok Holdings’ growth rate has slowed very considerably in recent years.
Spok Holdings’ historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been -3.5% per year.
Total asset growth has been -3.7% per year. (More recently it has been -7.3%.)
Annual E.P.S. growth has been -3.6% per year. (More recently it has been -16.2%.)
Equity growth has been -5.6% per year. (More recently it has been -9.1%.)
No consensus growth rate forecast is available for Spok Holdings.
Relative to the Spok Holdings Peer Group, Spok Holdings’ historical growth measures are consistently lower quartile. Revenue growth (-3.5%) has been lower quartile. Total asset growth (-3.7%) has been lower quartile. E.P.S. growth (-3.6%) has been lower quartile. Equity growth (-5.6%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Spok Holdings’ stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Spok Holdings’ stock price rose +15%; relative to the market, this was a -63% loss. Significant price moves during the period: 1) June, 2022 – November, 2023: +166%; and 2) December, 2016 – October, 2020: -56%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 118.5% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of 118.5% is upper quartile relative to Spok Holdings Inc Peer Group.
Current 5-year total return performance of 12.1% is above median relative to the S&P 500 Composite.
Through January, 2024, with above median current 5-year total return of 12.1% relative to S&P 500 Composite, Spok Holdings’ total return performance is above median relative to Spok Holdings Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, SPOK’s overall valuation is low. The highest factor, the ratio of enterprise value/assets, is slightly below median. Ratio of enterprise value/earnings before interest and taxes is near the lower quartile. Ratio of enterprise value/revenue is near the lower quartile. Price/equity ratio is at the lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Relative to Spok Holdings Peer Group, SPOK’s overall valuation is normal. The highest factor, the ratio of enterprise value/assets, is upper quartile. Ratio of enterprise value/revenue is above median. Price/equity ratio is slightly above median. Ratio of enterprise value/earnings before interest and taxes is below median. The lowest factor, the price/earnings ratio, is at the lower quartile.
Spok Holdings has a large value gap compared to the median. For SPOK to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 2.34X to 1.94X. If SPOK’s ratio of enterprise value/revenue were to fall to 1.94X, its stock price would be lower by $-3 to $13.
For SPOK to achieve upper quartile valuation relative to the Spok Holdings Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.34X to 2.55X. If SPOK’s ratio of enterprise value/revenue were to rise to 2.55X, its stock price would increase by $1 from the current level of $16.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, SPOK is expected to continue to be a Value Builder.
Spok Holdings’ current Price Target of $16 is little changed from the current price of $15.56.
This moderately low appreciation potential results in an appreciation score of 34 (66% of the universe has greater appreciation potential.)
Notwithstanding this moderately low Appreciation Score of 34, the high Power Rating of 94 results in an Value Trend Rating of B.
Spok Holdings’ current Price Target is $16 (+29% from the 2022 Target of $12 and +1% from the 02/21/24 price of $15.56). This rise in the Target is the result of a -14% decrease in the equity base and a +49% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted increase in growth has a very large positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 14.1% — slightly above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is significantly above the 2021 low of 4%.
PTR’s growth forecast is 6.0% — above our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2016 and 2022. The current forecast is above the 2016 low of 1%.
PTR’s cost of equity forecast is 9.2% — in line with recent levels. Forecasted cost of equity exhibited a modest, erratic decline between 2014 and 2022. The current forecast is well above the 2021 low of 4.1%.
At Spok Holdings’ current price of $15.56, investors are placing a positive value of $1 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 9.9% versus a cost of equity of 7.3%.
PTR’s 2024 Price Target of $16 is based on these forecasts and reflects an estimated value of existing assets of $12 and a value of future investments of $4.
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