For bargain hunters, the search for useful value in the stock market is a never-ending task.
Sometimes it’s easier than at other times. It isn’t just about the direction the broad market is going—although that certainly plays a role in how abundant or scarce those opportunities may be. It’s also about recognizing areas of the market—sectors, industries, and sub-industries—that have their own ebb and flow, in concert with or divergent from the direction of the broader economy. It’s comforting to find industry and sector leaders at useful value prices, since they’re easily recognizable and often signal the opportunity to find a lot of other good values in that industry. For me, the fun part of bargain hunting is finding a smaller player in an industry with the kind of fundamental strength and value characteristics that I like to see in a long-term investing opportunity. Those often represent under-appreciated and overlooked “targets of opportunity” that the rest of the market just hasn’t caught up to yet.
Dun & Bradstreet Holdings (DNB) is stock that came across my desk this week through one of the many screening tools I use to mine for the stocks I write about and keep in my watchlist. This isn’t an unknown name in the Business Services world, but it is a newer stock in the marketplace, with its initial public offering taking place about three years ago. Despite the newness of its stock, the company has been around for decades as a business data and analytics provider. From its 2020 IPO launch, where the stock’s price peaked a little above $28 per share, the stock has followed a steady downward trend covering the last two and a half years. Its status as a small-cap stock, along with its massively underwhelming price performance are certainly enough to make any growth-focused investor set it aside. The stock’s trend, and general opinion tend to overlook the company’s strengths, which include healthy free cash flow and a conservative, but useful-enough dividend. Is that enough to make the stock’s value proposition worth paying attention to? Let’s find out.
Fundamental and Value Profile
Dun & Bradstreet Holdings, Inc. is a global provider of business decisioning data and analytics. The Company clients embed its end-to-end solutions into their daily workflows to inform commercial credit decisions, confirm suppliers and improve salesforce productivity and gain visibility into key markets. Its solutions support its clients’ business operations by providing curated data and analytics to help drive informed decisions and improved outcomes. The Company operates through two segments: North America and International. Its Finance & Risk solutions are used in the critical decisioning processes of finance, risk, compliance, and procurement departments around the world. Its Sales & Marketing solutions combine firmographic, personal contact, intent, and non-traditional data to assist clients in optimizing their sales and marketing strategy by cleansing customer relationship management (CRM) data and narrowing their focus and efforts on the probability prospects. DNB has a current market cap of $5.2 billion.
Earnings and Sales Growth: Over the last twelve months, earnings declined about -32%, while sales growth was flat, but positive, at 0.82%. In the last quarter, earnings decreased by -46.4% while sales were -9.2% lower. DNB’s operating profile raises some concerns about profitability, as Net Income was -0.21% of Revenues over the last twelve months, and dropped to -6.24% in the last quarter. Widening, negative Net Income suggests the company is spending more than it is bringing in.
Free Cash Flow: DNB’s Free Cash Flow is healthy, at $544.2 million over the last twelve months. That represents a useful increase from $414.6 million a year ago, and $524.5 million in the prior quarter. The current number translates to a useful Free Cash Flow Yield of 10.7%. It also offers an interesting counterpoint to the negative Net Income picture I just described.
Debt to Equity: DNB has a debt/equity ratio of 1.03, a number that suggests the company is highly leveraged. Cash and liquid assets in the last quarter were about $204 million versus about $3.55 billion in long-term debt. While Free Cash Flow indicates debt service should not be a problem, the company’s negative Net Income pattern and limited liquidity strongly suggests that a reversal of its operating pressures is needed.
Dividend: DNB pays an annual dividend of $.20 per share, which at its current price translates to a dividend yield of about 1.73%.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to worth with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term target at about $16.50 per share. That means the stock is undervalued, with about 44% upside from the stock’s current price.
Technical Profile
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The chart above displays the last year of price activity, with the diagonal red line tracing the stock’s downward trend from its peak a year ago at around $17 to its low point, reached in June at around $9.50. It also provides the baseline for the Fibonacci retracement lines shown on the right side of the chart. The stock has rallied strongly from that low, finding latest, immediate resistance right around the 38.2% retracement line at about $12.25, and fading off of that level in the last week or so. Current support is around $11.75, based on pivot high activity seen throughout April as well as in mid-June. A push above $12.25 could see upside to about $14, where the 61.8% retracement line sits, while a drop below $11.75 should find next support at around $10.50; however, if selling activity increases and pushed the stock below $10.50, the stock should retest its 52-week low in the $9.50 price area.
Near-term Keys: DNB’s value proposition is interesting, and the stock’s rally off of its latest low makes it a tempting contrarian play against its long-term downward trend. I do think that the company’s negative Net Income pattern needs to be reversed to make its value proposition truly compelling. That means that the best probabilities to work with this stock right now lie with short-term trading strategies; if the stock drops below $11.75, consider shorting the stock or buying put options, using $10.50 as a practical, initial bearish profit target, and $9.50 possible if bearish momentum increases. A push above $12.25 could offer an interesting signal to buy the stock or work with call options, using $14 as a a practical profit target on a bullish trade.