Despite an almost 80% rise since the March 23 lows of this year, at the current price of around $59 per share, we believe Cubic stock (NYSE: CUB), best known for its diversified systems and services for the transportation industry worldwide, has more room for growth. CUB stock has rallied from under $33 to $59 off the recent bottom, compared to a 47% move for the S&P500. In fact, the stock price surged over 34% in a single trading session on Sep 21, after the news broke of Elliott Management’s, an activist hedge fund, 15% ownership in the company. We discuss more on this in the section below.
Notably, despite the recent rally, CUB stock is still at the same level it was trading at toward the end of 2017. However, going by fundamentals, the company’s performance has been robust over recent years. Revenues grew 35% from $1.1 billion in 2017 to $1.5 billion in 2019. This clubbed with a 12% increase in total shares outstanding meant a 20% rise in revenue per share from $41 to $49. Our dashboard, ‘What Factors Drove 0.3% Change in Cubic Stock between 2017 and now?‘ has the underlying numbers.
Cubic’s’ P/S multiple changed from 1.4x in 2017 to 1.3x in 2019. While the company’s P/S is now 1.2x, there is an upside when the current P/S is compared to levels seen in the past years, P/S of 1.3x as recent as late 2019.
So what’s the likely trigger for the stock?
The global spread of Coronavirus has also impacted Cubic’s sales, which declined 8% in fiscal Q3 (fiscal ends in September). However, it continued to see strong bookings for its Transportation Systems segment, which refers to the company’s offerings of integrated systems centered on contactless smartcard technology for transportation and traffic management. The growth in bookings, which more than doubled in fiscal Q3, was primarily led by Cubic’s agreement with Massachusetts Bay Transportation Authority to implement a contactless payment system.
However, the surge in the stock price last week was purely related to the company’s disclosure of adoption of a limited-duration shareholder rights plan, which was made effective immediately and it will expire on September 19, 2021. This step was taken by the company after Elliott Management along with its affiliates reached a 15% ownership in Cubic. Furthermore, Elliott along with a private equity firm, expressed interest to acquire Cubic. The company stated that it has not put itself up for sale, and it expects to do well as a standalone entity. The adoption of the rights plan means Cubic doesn’t have to worry about a hostile takeover, while it assesses offers made by Elliott Management. Overall, Cubic appears to be in a great spot for an upside move after this news, and given the fact that the stock hasn’t seen any growth over the recent years, despite improving fundamentals.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams