February 16, 2023

The market has continued to hold up surprisingly well in the face of less-than-great inflation reports.

We’re in a period where it appears the pros of slightly stronger economic growth outweigh the cons of a slower-than-desired inflation retreat. Earnings season is helping to return focus to company specifics, for the time being.

Our earnings season really heats up next week as we should have at least six positions report. It’s going to be an intense week, so buckle up!

Stepping back, the S&P 600 Small Cap Index looks resilient, though the 1,300 level (from August) continues to prove a formidable zone of overhead resistance.

My best guess is we’ll need interest rates to cool off before this Index can break through. The 10-year yield is now at 3.84%, up about 13% from 3.33% two weeks ago. So there’s potential for a dip, but we’ll need the Fed to resist the urge to jack rates after the March meeting for that to happen.

Recent Changes

None

Updates

Enovix (ENVX) is about where it was a week ago. Earnings are out next Wednesday. As a practical matter, this is mostly an update on the transition to commercial production. We’re hoping for good news regarding new production lines but are also aware that recent updates have fallen short of expectations. HOLD

Earnings Date: Wednesday, February 22

Expensify (EXFY) is a financial services software company with a cloud-based expense management platform. There are risks in the current market as Expensify’s clients skew toward small businesses. However, with an undemanding valuation and management’s long-term goal of 25%+ growth, as well as share buybacks (company and employees) I believe this is a stock worth being a little early on. In Q3 2022, revenue grew by 13% to $42.5 million, driven by growth in paid members and reimbursement activity. The return of business travel has helped. The company is on track to grow revenue by 19% this year, to $170 million. EPS should be around $0.28. In 2023 analysts expect Expensify to grow revenue by 12% to $190 million and to grow EPS by 14% to $0.32. However, there are a number of factors that could cause those estimates to change, hopefully for the better. BUY

Earnings Date: Thursday, February 23

Flywire (FLYW) has pulled back 15% from its recent high on February 2 and is now back at its 50-day line. It should find support here, though earnings a week from Tuesday will really determine the next move. Analysts are looking for revenue growth of 27% to $65.5 million and for EPS of around -$0.12. Guidance for 2023 should imply at least 30% revenue growth ($350 million) and EPS of -$0.19 or better. BUY

Earnings Date: Tuesday, February 28

Huron Consulting (HURN) is still trading on its 200-day line and will report a week from Tuesday. Analysts are looking for revenue to grow 8% to $282.4 million and for EPS to grow 24% to $0.99. Guidance for 2023 should be for at least 10% revenue growth ($1.21 billion) and EPS of $3.98 (+20%). As part of its accelerated growth and profitability strategy, Huron management expects to deliver, through 2025, low double-digit annual revenue growth, high-teen annual EPS growth, and to deploy 25% to 50% of cash flow to shareholders. This should be good for the stock. Over the first nine months of 2022, Huron repurchased 7.8% of its common stock. BUY

Earnings Date: Tuesday, February 28

Inspire Medical Systems (INSP) reported a great quarter last week and the stock continues to look fantastic. No new news. HOLD TWO THIRDS

Earnings: Done

Intapp (INTA) reported a big beat last week and the stock rallied 20% the next day. It’s continued to climb and is now up roughly 35% from where it was just prior to the report. Despite the bright potential I moved to hold since I didn’t want subscribers chasing a stock into this week’s inflation reports. INTA’s continued strength is impressive. HOLD

Earnings: Done

Rani Therapeutics (RANI) continues to be weak and we don’t have an earnings date yet. HOLD

Repligen (RGEN) continues to look relatively resilient in the wake of industry takeover rumors – Danaher (DHR) kicking the tires on Catalent (CTLT) – and in the weeks before earnings come out. Analysts are currently looking for Q4 revenue to be down about 1% to $184.6 million and EPS to be down 28% to $0.58. That would cap off a 2022 in which revenue is up 19% to $800 million and EPS is up 4% to $3.18. Non-Covid revenue should be up 15% to 20% in 2023, however, total revenue may be about flat. Management has already de-risked this year, so analysts are likely to zero in on price increases (5% expected), the health of the overall industry, new product development, etc. HOLD

Earnings Date: Wednesday, February 22

Sprout Social (SPT) reports next Tuesday. We’re looking for revenue of $69.8 million (+71%) and EPS of -$0.02. The guidance hurdle for 2023 is revenue of $330 million (+32%) and EPS of -$0.03. HOLD HALF

Earnings Date: Tuesday, February 21

TransMedics Group (TMDX) remains strong, and we have an earnings date of next Tuesday. We’re looking for revenue to be up 153% to $24.5 million and EPS of -$0.30. Revenue guidance for 2023 should be at least $130 million (+44%) and EPS of -$1.00. Given the early-stage nature of this business, there could be significant variability between actual and expected results. HOLD THREE QUARTERS

Earnings Date: Tuesday, February 21

Xometry (XMTR) remains a little beat up, but we have an earnings date to look forward to on March 1. Analysts are looking for revenue of $104.3 million (+55%) and EPS of -$0.28. For 2023 guidance should be for revenue of at least $520 million (+33%) and EPS of at least -$0.45. We want to hear that the algorithm has been tweaked to get better pricing for Xometry. HOLD

Earnings Date: Tuesday, February 21

Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.