Baird is out with a pretty interesting upgrade on PharmaNet Development (NASDAQ:PDGI) raising their rating to Outperform with a whopping $7 tgt saying they believe that PDGI is increasingly likely to successfully address the convertible debt-related liquidity concerns by early 2009. While fundamental performance is poor and market trends not fully certain in the near-term, they believe that resolution of bankruptcy risk fears may drive materially higher valuation, despite PDGI's ongoing challenges.
Massive valuation reset. PDGI shares are 98% off annual highs, due partly to unprecedented performance and bookings volatility and abysmal 3Q trends (preannounced 9/11), market-wide and CRO sector pressures. However, the firm believes current price is severely discounted for bankruptcy fears.
Liquidity issues. Before 3Q reporting, PDGI held $52M cash, looked cash flow negative for
2008, substantially slashed guidance on 9/11, and as the shares imploded the global financial crisis heightened and capital markets activity ground to a halt. Not good, given PDGI's $143.75M
in 2.25% convertible notes, which are putable at $41.08 on August 15, 2009.
Believe PDGI can remedy this crisis. PDGI hired advisors to explore 1) cash tender, 2)
xchange offer, and/or 3) open market repurchases, among other options. Baird believes that
ncreased cash position ($63.3M), A/R collection potential ($124M), $14.1M FCF in 3Q, and
growing interest from outside sources and particular importance of this deal to the advisers lends confidence. They see a range of potential solutions, most of which will be highly dilutive, but resolution should lift the shares sharply off the floor.
This is a highly speculative call, and financing resolution wouldn't remedy all of PDGI's issues. Firm slashed future estimates for f/x risk, unique mix and market risk, a poor bookings profile and implied dilution from any financing venue. While they see PDGI earning its current share price in 3-5 years, they applied deeply discounted multiples (7.5x P/E, 5.6x EV/EBITDA, ultra-conservative DCF) to arrive at $7 price targe.
Notablecalls: Well I'll be damed if PDGI doesn't trade towards $2.50 level soon. I think Baird's wording is strong and will generate some speculative interest in PDGI in the n-t.
Massive valuation reset. PDGI shares are 98% off annual highs, due partly to unprecedented performance and bookings volatility and abysmal 3Q trends (preannounced 9/11), market-wide and CRO sector pressures. However, the firm believes current price is severely discounted for bankruptcy fears.
Liquidity issues. Before 3Q reporting, PDGI held $52M cash, looked cash flow negative for
2008, substantially slashed guidance on 9/11, and as the shares imploded the global financial crisis heightened and capital markets activity ground to a halt. Not good, given PDGI's $143.75M
in 2.25% convertible notes, which are putable at $41.08 on August 15, 2009.
Believe PDGI can remedy this crisis. PDGI hired advisors to explore 1) cash tender, 2)
xchange offer, and/or 3) open market repurchases, among other options. Baird believes that
ncreased cash position ($63.3M), A/R collection potential ($124M), $14.1M FCF in 3Q, and
growing interest from outside sources and particular importance of this deal to the advisers lends confidence. They see a range of potential solutions, most of which will be highly dilutive, but resolution should lift the shares sharply off the floor.
This is a highly speculative call, and financing resolution wouldn't remedy all of PDGI's issues. Firm slashed future estimates for f/x risk, unique mix and market risk, a poor bookings profile and implied dilution from any financing venue. While they see PDGI earning its current share price in 3-5 years, they applied deeply discounted multiples (7.5x P/E, 5.6x EV/EBITDA, ultra-conservative DCF) to arrive at $7 price targe.
Notablecalls: Well I'll be damed if PDGI doesn't trade towards $2.50 level soon. I think Baird's wording is strong and will generate some speculative interest in PDGI in the n-t.
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