2iQ Insider Brief : Methode Electronics(MEI US) Prospect Capital (PSEC US) Precision Drilling Corp (PD CN)

Kaloyan Kolev 4 January 2019

Methode Electronics Inc (MEI: US) 

12-month performance: -42%
Insider activity: Bullish
Buying pattern: Purchases from multiple directors including CEO, CFO and COO
Recent news: Weaker sales in automotive division

 Methode Electronics is a US manufacturer of component and subsystem devices. The group designs, manufactures and markets devices employing electrical, radio remote control, electronic, wireless and sensing technologies and its solutions are used by over 10% of Global 500 companies. The stock is listed on the New York Stock Exchange and currently has a market capitalisation of $867 million.

 

Methode shares have fallen sharply since mid-September, losing around 40% of their value. The stock has been dragged down by the wider technology sector selloff, and investors also offloaded the stock after Q2 results, as the company advised that automotive sales for FY2019 would be considerably lower. However, Methode has recently completed three acquisitions with combined annual revenues of $350 million and management believes that these acquisitions will drive innovation, boost margins and increase long-term value going forward. After a 40% share price fall, could the stock have the potential for a rebound?

 Methode Electronics

Source: 2iQ Research

Looking at insider transaction activity, we think the medium-term investment case for Methode looks interesting. This is due to the fact that since Methode’s Q2 results and subsequent share price fall, four top-tier directors have purchased shares in the company, which we view as a bullish signal. Those acquiring stock have included CEO Donald Duda, CFO Ronald Tsoumas, and COO Joseph Khoury, with all three directors buying significant quantities of shares. With top-level management clearly optimistic about the future, we believe the stock is worth keeping a close eye on.   

 

Prospect Capital Corp (PSEC: US) 

12-month performance: -8%
Insider activity: Bullish
Buying pattern: Purchases from multiple directors including CEO, CFO and COO
Recent news: Solid Q1 results

 

Prospect Capital Corporation is a leading provider of private debt and private equity to middle-market companies in the US. With a focus on sponsor-backed transactions and direct lending to established owner-operated companies across a range of industries, the group’s objective is to generate both current income and long-term capital appreciation for shareholders. The stock is listed on the NASDAQ Global Select Market and currently has a market capitalisation of $2.3 billion.

 

Prospect Capital Corp reported a solid set of first-quarter results in November, with net investment income rising 34% on the same period last year. However, despite this robust performance, the shares experienced a sharp selloff in early December as the US equity market declined and investors took profits in the high-yield sector. Could this selloff have presented a buying opportunity given that the stock now yields over 11%?

 Prospect Capital

Source : 2iQ Research

Analysing recent insider transaction activity at Prospect Capital, we think the shares could have upside from current levels. This is due to the fact that a number of key insiders have purchased shares in the company in the last few weeks, which suggests that they see value in the stock at present. Those buying have included CEO John Barry, who has spent over $11 million on stock, and President/COO Michael Eliasek, who spent $291,000 on shares. Given this pattern of director buying, we believe the outlook for the stock is favourable. 

 

Precision Drilling Corp (PD: CN) 

12-month performance: -37%
Insider activity: Bullish
Buying pattern: Purchases from multiple directors including CEO and CFO
Recent news: Announced acquisition of Trinidad Drilling

 Precision Drilling Corporation is an oilfield services company that provides onshore drilling and completion and production services to exploration and production companies in the oil and natural gas industry. The group has operations in the US, Canada, Mexico and the Middle East. The stock is listed on the Toronto Stock Exchange and currently has a market capitalisation of CAD $761 million.

 

Precision Drilling shares have fallen around 50% over the last four months after the company announced in October that it would be acquiring Trinidad Drilling for CAD $1.03 billion in an all-stock transaction. With Trinidad carrying debt of nearly CAD $500 million on its balance sheet, investors appear to be unimpressed with the deal. However, the move should generate CAD $30 million in synergies and also immediately increase free cash flow per share. It also puts Precision in a strong position to capitalise when the sector picks up again. With that in mind, could the shares offer upside potential after a 50% fall?

 Precision Drillign

Source : 2iQ Research

Looking at recent insider transaction activity, a number of top-level directors have purchased shares in Precision Drilling Corp recently, which we interpret as a bullish signal. Those buying have included CEO Kevin Neveu, who has recently added another 200,000 shares to his name, and CFO Carey Ford, who recently purchased another 17,750 shares. With key company insiders snapping up shares after the recent share price fall, we think the prospects for the stock could be bright.

Disclaimer: Neither 2iQ Research GmbH nor its content providers are responsible for any damages or losses arising from any use of this information.

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