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GreenWood Investors 1Q20 Commentary

GreenWood Investors 1Q20 Commentary




GreenWood Investors letter to investors for the first quarter ended March 31, 2020, discussing their long position in CTT Correios de Portugal SA (ELI:CTT).

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Q1 2020 hedge fund letters, conferences and more

Dear GreenWood Investor:

Reporting our performance this quarter feels quite a bit like the same experience I had preparing for my first confession as a young Catholic. Our performance, which has not been great in recent years, was truly terrible - a record new low for me since starting to manage the portfolio. I do not take this continued underperformance lightly, and if you would permit me, I’d like to confess in a rather longer quarterly letter than normal, some of what went into this historically undesirable result for us. And I’d also like to explain why in some ways, it’s the best thing that could have happened to us.

Psychologists over the past century have largely identified two separate voices in our own heads. Daniel Kahneman calls these two minds System 1 and System 2. System 1 is what ancient Greeks and Buddha called the ego, it is the rapid-firing and emotional part of our brains, which is largely housed in the amygdala and the limbic system. System 2 is the slow, deliberate part of our minds that can handle complexity, and is inherently very creative. It is housed in the pre-frontal cortex, a segment of the brain that is unusually developed in humans over other mammals. In talking about the two separate parts of our minds, brilliant psychologist Carl Jung explained the great benefit that confession has brought to people throughout the ages. Confession admits and embraces the behavior patterns of System 1, which often leave us red-cheeked and embarrassed. As Jung wrote in Modern Man in Search of a Soul, "There appears to be a conscience in mankind which severely punishes the man who does not somehow and at some time, at whatever cost to his pride, cease to defend and assert himself and instead confess himself fallible and human.”

While investing requires a humble approach, our recent results are indeed humbling, and reflect the decidedly fallible parts of our nature. They also reflect my previous cavalier disregard for System 1 thinking, which actually proved to be harmful to us, rather than helpful.


System 1 is the passionate, angry, greedy, and fearful parts of our minds. The amygdala, which is largely our survival mechanism, serves to keep us alive. It got mankind from 400,000 BC to 4,000 BC. But after civilizations arose in the ancient middle east, System 2 thinking was the value driver. It is the cooperative, collaborative, generous part of our mind. It enables teamwork, complex and structured thinking, and infinite creative possibility. It is the source of value creation throughout these last millennia. This is why, as Carl Jung asserted, self-restraint was one of the earliest celebrated virtues of society. It wasn’t the System 2 self that needed restraint, it was the System 1 ego. But Mr. Market is only capable of System 1 thinking. My constant attempt to quiet System 1 through meditation, has built up this disregard for Mr. Market, the very counter-party that determines our fate on a short-term basis. As Jung asserted, claiming ownership of this part of our minds is key to the process of healing. So in that vein, I have a few more confessions.

The Book

For the past few years, I’ve been using runs, chores and office commutes as opportunities to listen to research for a book I’m working on, The Builders. It’s a historical and psychological look at some of the most impactful value creators of all time. While macro-economists like to look at centuries of data to inform their thinking on where we are in the arc of history, this project is a micro-economic and psychological analysis of the biggest builders over the past three millennia.

Perhaps the most interesting outcome of that research was the realization that while the originator of value creation has been a highly developed pre-frontal cortex, or the home of System 2, all major commercial value creators also had a very strong System 1, or at least keen understanding of its methods, tricks and behaviors. Many of them understand System 1 so well that the products or services they create catch the world by fire, or rather by involuntary reactions of System 1. System 1, or the ego, doesn’t think before it acts. It wants immediate gratification. While many of these products or services either are a hook, line, and sinker to consumers’ limbic systems, in many other cases, they invite their customers into System 2 stimulation. One of the brilliant, possibly accidental, virtues of Private Equity and Venture Capital, is that these funds can mark their funds to model as opposed to the whims of System 1. While this lack of volatility is a complete illusion, it saves its limited partners the pain of constantly being subjected to the amygdala. System 1 is not a fun place to hang out, as the evergreen scowl on President Trump’s face bears witness.


So in my cavalier disregard for Mr. Market’s or System 1’s views, I was actually ignoring a theory which my own research has been able to unearth. The most impactful value creators are masters of both Systems 1 & 2. To be fair, the insight only came in early January, but this entire social dialogue that the “ego is the enemy” that has taken hold has not served us well. Quite frankly, I’d rather be empathetic to the needs of Mr. Market, and not keep “pushing rocks uphill.”

Accelerating Our Framework Evolution

As Chris and I were chatting about portfolio construction in the context of our ranking framework in early February, he articulated that too much of our portfolio had tough stock market narratives. Too many companies, it seemed, had managers swimming upstream. I’m not sure what I looked like to him, but internally, it was as if I had seen a ghost. He was exactly right. My penchant to puzzle-solve complex situations, and my contrarian nature had naturally attracted me to deeply out of favor transformations where we had a very different view of the world than Mr. Market’s. This is the “hedgehog” approach that psychologist Phil Tetlock talks about. But while hedgehogs hit home-runs, they are less reliable in hitting steady singles every time they bat.

I immediately agreed with Chris and we evolved our framework that very afternoon. As a result, we are no longer allowing an extreme outlier in one area of our framework, which ranks companies on three continuums: value - quality - behavioral, to over-ride a terrible ranking in the other two criteria. The second evolution to the framework has been abandoning the 3, 6, 12-month roadmap of the market’s vs. the fundamental views. Instead, we now select three major concerns of Mr. Market’s, assess the fundamental reality of such drivers and make probability-adjusted estimates of the likely progression of those drivers. We also have added three probability-adjusted narrative inflection points, or developments which can cause a sudden and forceful shift in the market narrative.

System 1 is inherently unpredictable. It’s sort of like a child that falls. If there’s no blood, and you maintain a smile, maybe you can avoid the tantrum. Maybe they’ll be laughing 60 seconds after crying. The evolution of that is unpredictable, but we can at least understand what System 1 cares about, and where those inflection points may be.

We were getting there with our entire portfolio, and then the Covid-19 (C-19) market turmoil hit prior to us selling down some companies that had a low likelihood of reaching an inflection beyond the narrative of “pushing the rock up the hill.” It didn’t mean we were paralyzed by the turmoil. Rather, it was almost refreshing for us. While it was both a frustration and a great opportunity, fundamentals didn’t matter during the C-19 selloff. That meant these “rocks uphill” companies sold off with equal vigor to companies that are managed by Builders with better narratives. The funny thing about the selloff is that while Mr. Market did a great job differentiating between industry and market sectors, it did a very poor job distinguishing between good managers and administrators, or companies with a debt or a cash position. Frankly, in a world where the MBA “optimization” processes are no longer relevant, I trust managers who actually embody their business more than I trust the MBAs. I trust cash over debt. I trust organic growth over financial engineering. Mr. Market still hasn’t differentiated between these dichotomies, and owner-operators and familycontrolled businesses have still managed to underperform the market by over 10-points so far this year.

These are the people we feel most comfortable with, and who have generated the most significant long-term outperformance. The recent market drawdown and underperformance of this class of ~2k companies (with a market capitalization over $1 billion) has been historic. These managers have a large amount of skin in the game. They don’t give quarterly guidance. They use less cash for acquisitions, buybacks and dividends. They have lower profit margins, but significantly faster revenue, employee and fixed asset growth despite carrying lower debt levels. In the white paper I’m working on with my friend Ehren Stanhope, we will publish our findings on their behaviors, which unsurprisingly run counter to so many of their peers who are largely compensated in stock options by a board with no share ownership (after all, they need “independence”).

When Mr. Market failed to differentiate, and in fact, penalized this class of companies, we moved quickly. We added five new long positions, three of which are founder-led, and the other two of which have very good management teams with significant skin in the game. Four of these five businesses are net beneficiaries of the current pandemic environment, despite them selling off more than global markets in the beginning of the panic.

I confess we went into the crisis with a larger-than-normal gross long positioning in our fund, which is clearly reflected in the performance. It was because we were so enthusiastic about the year ahead at our coinvestment, or CTT Correios de Portugal (CTT). With deep gratitude to an anchor investor, we started investing in this company in early 2018, and have managed to buy over 8.5% of shares today. We had a playbook of drivers that we believed would deliver very substantial value to the company, and in early 2019, we sought a board seat to help secure execution over these initiatives. We wanted to wait to publicly talk about CTT until we were more advanced in executing these strategic priorities for the company. But, as our very large weighting in the fund suggested, and our funds’ overall heavier gross long exposure show, we think the year ahead, the company’s 500th year in operation, will be one of the most transformational in its long history. It’s a good time to discuss what we’ve been working on in Portugal.

CTT - Committed to Deliver

As a constructivist investor, we took an opposite approach to a traditional activist in the American markets, which typically argue for a leveraged recapitalization of the company. The traditional activist re-arranges the capital structure to favor shareholders in the short-term, and often leaves a long-term bill that will be brutally painful to pay one day down the road (most likely by the creditors). In hindsight though, it would have made sense for our playbook to include a few “quick wins” that would have led to more immediate performance for our investors, who have patiently waited for our more transformational efforts to bear fruit. We could have planned a better roadmap for both System 1 and System 2, but we don’t think we’ll have to wait much longer.

After we took a large position in CTT Correios de Portugal (CTT), the postal carrier of the country, we were welcomed on the board last year. The very meeting we were voted in, we abstained from the vote on the company’s dividend payment. Rather than payout all the cash from the company, which is basically admitting defeat, we saw a lot of potential for growth in the core business, as well as many peripheral areas where the brand could be extended.

Over the prior year, I had developed a relationship with many other large shareholders of the company, during which I got to know João Bento. Through too many conversations to count, we shared ideas for the company and its diverse business activities. When CTT's former CEO decided to retire, João serendipitously had his 100-point plan ready to go. He hit the ground running in late May 2019. He has refreshed some of the executives at the company, and more importantly, created a bench of ~40 direct reports, nearly all of whom I’ve met and impress me with their work ethic. Since last summer, João and these able executives have been laying the groundwork for a return to growth at our company, and a robust return at that. Rather than a centralized structure reminiscent of a government-controlled entity, this team and its collaborative approach has already completely redefined the purpose of the company and its relationship with customers.

How can a postal company, a melting ice cube, return to growth? Well, while mail is reported as a large portion of the company’s revenue, only a quarter of the overall revenue last year was tied to ordinary transactional mail (the secularly declining kind being eaten by the internet), and it will clearly be lower this year. Surely that will be going away over the medium term. Two major parts of that reported segment, registered mail and international mail don’t face the same underlying digitalization headwinds. In fact, the company’s international mail is largely being driven by soft parcels coming in from China, as Chinese e-commerce companies were the first to arrive in Portugal.

The company’s ubiquitous network that touches nearly every house and business almost every day is a fantastic delivery mechanism for the clear bull market in parcels, particularly e-commerce-driven parcels. Express networks are not properly set up for the last mile outside of highly urban areas. That’s why postal companies largely win the last mile of e-commerce. It’s a business that’s somewhat similar to a cement company, local market share matters heavily. As we all learned in geometry, when a truck’s delivery radius shrinks by half, as its market share doubles, the total area driven is reduced by ~75%. That means market share conveys a very significant cost advantage. And while CTT is not a sexy business, it’s almost as boring as it gets, it is highly durable. It’s one reason why challenger mail delivery companies in the past always failed. But now that mail is disappearing, it’s not guaranteed the postal carriers win ecommerce. There are two separate networks anddelivery methods. Mail routes have been traditionally fixed, while express & parcels routes are typically more dynamic. We have a great challenge, but also a great opportunity, to try and converge these two networks into one. Already, around 70% of the company’s parcels are being delivered by postmen, and frankly, the word postman should really be parcel-man today. The bag or van has mostly parcels in it.

As already mentioned, this year is the company’s 500th anniversary, and as a new board member told me when I met her last year, “you need to know something, everyone in Portugal has a piece of CTT in their hearts. We all have ownership over it.” It was a symphony to my ears, as she mentioned the key skin in the game trigger that drives highly favorable outcomes no matter what business or industry we’re in. It’s no surprise that the largest telecom in the country was once a segment of the company. Just a few years ago the company launched its own bank, which we estimate has taken almost half of all new accounts in the country since being opened. It has the highest customer satisfaction, and with a labor and physical footprint around one tenth of its competitors, it will have a permanent cost advantage versus peers.

Investors have given this bank, with a balance sheet of €212 million in equity, a zero or negative valuation in the market. We don’t share their pessimism, and originally wanted to help underwrite an IPO to allow a spin off of the bank. Unfortunately, investor appetite for European banks over the past 18 months has collapsed to a state of revulsion. Still, the bank is accelerating growth plans to become more like a fin-tech than a bank, and we’re encouraged by the strong growth in profitability and significant revenue coming from non-interest income. That’s not because the bank charges aggressive commissions to its customers, in fact it’s the opposite. But the bank handles a very considerable portion of the payments in the country, which is no surprise that when fin-tech Revolut wanted to partner with a local bank, as an experiment with cash top-up of payment cards, it chose us. We believe there will be many more partnerships in the payments arena. We are excited about an acceleration in the non-interest income, no matter what happens to the pervasive negative rates in Europe. The value of the bank is not very concerning to us, though it has been to the market. We’re in the very early stages of working on something to help alleviate investor stress there. But it’s certainly not worthless, despite Mr. Market giving it such an appraisal.

We are much further along in optimizing another under-appreciated asset within the company, the significant real estate portfolio throughout the country. Because the company is centralizing its distribution centers, in order to more fully automate tasks, a very large number of logistics centers will be left vacant over the course of the next year or two. While the portfolio is quite diverse, some of these are fairly well-located assets, and can be repurposed to a highervalue mission. As CEO João Bento disclosed on the last quarter’s call, the value of this portfolio today is over €200 million, and we believe there will be incremental value-add as we work with a real estate manager to unlock the considerable value in this portfolio. Thus, combined with the bank, and even if we take a major haircut to the bank’s value, the stock with just over a €300 million market cap today and a €32 million net cash position, means the company’s current enterprise value is deeply negative. So investors today are getting paid to take a core business which before the coronavirus, was on track to hit over €90 million in EBITDA in 2020, even after the new lease expenses and banking income are removed.

Mr. Market is also worried about the company’s deteriorated regulatory relationship, which last year accelerated the loss-making status of the regulated universal mail service. GreenWood estimates that this contract is loss-making at the EBITDA line, and including depreciation, which is roughly equal to maintenance capital expenditures, lost nearly €20 million. That is the definition of unsustainable. In early March, I had the chance to meet with Portuguese Economy Minister Pedro Siza Vieira and confirmed that at least this large shareholder is committed to keeping the universal service, as the government wishes, but only under a sustainable contract. The current contract, which was abruptly changed in January of 2018, carries with it a deep negative net present value.

Read the full letter here.


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Family Of College Student Who Died From COVID-19 Vaccine Sues Biden Administration

Family Of College Student Who Died From COVID-19 Vaccine Sues Biden Administration

Authored by Zachary Stieber via The Epoch Times (emphasis…



Family Of College Student Who Died From COVID-19 Vaccine Sues Biden Administration

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The family of a college student who died from heart inflammation caused by Pfizer’s COVID-19 vaccine has sued President Joe Biden’s administration, alleging officials engaged in “willful misconduct.”

George Watts Jr. in a file image. (Courtesy of the Watts family)

U.S. Department of Defense (DOD) officials wrongly promoted COVID-19 vaccination by repeatedly claiming the available vaccines were “safe and effective,” relatives of George Watts Jr., the college student, said in the new lawsuit.

That promotion “duped millions of Americans, including Mr. Watts, into being DOD’s human subjects in its medical experiment, the largest in modern history,” the suit states.

The Public Readiness and Emergency Preparedness Act allows lawsuits against certain people if they have engaged in “willful misconduct” and if that misconduct caused death or serious injury.

COVID-19 vaccines are covered by the act due to a declaration entered during the Trump administration in 2020 after COVID-19 began circulating.

DOD’s conduct and the harm caused as alleged within the four corners of the lawsuit speaks for itself,” Ray Flores, a lawyer representing the Watts family, told The Epoch Times via email. “I have no further comment other than to say: My only duty is to advocate for my client. If the DOD conveys a settlement offer, I will see that it’s considered.”

The suit was filed in U.S. court in Washington.

The Pentagon and the Department of Justice did not respond to requests for comment.

Watts Suddenly Died

Watts was a student at Corning Community College when the school mandated COVID-19 vaccination for in-person classes in 2021. He received one Pfizer dose on Aug. 27, 2021, and a second dose approximately three weeks later.

Watts soon began experiencing a range of symptoms, including tingling in the feet, pain in the heels, numbness in the hands and fingers, blood in his sperm and urine, and sinus pressure, according to family members and health records.

Watts went to the Robert Packer Hospital emergency room on Oct. 12, 2021, due to the symptoms. X-rays showed clear lungs and a normal heart outline.

Watts was sent home with suggestions to follow up with specialists but returned to the emergency room on Oct. 19, 2021, with worsening symptoms despite a week of the antibiotic Augmentin. He was diagnosed with sinusitis and bronchitis.

While speaking to his mother at home on Oct. 27, 2021, Watts suddenly collapsed. Emergency medical personnel rushed to the home but found him unresponsive. He was rushed to the same hospital in an ambulance. He was pronounced deceased at age 24.

According to a doctor at the hospital, citing hospital records and family members, Watts had no past medical history on file that would explain his sudden death, with no known history of substance abuse or obvious signs of substance abuse. His mother described her son as a “healthy young male.”

Dr. Robert Stoppacher, a pathologist who performed an autopsy on the body, said that the death was due to “COVID-19 vaccine-related myocarditis.” The death certificate listed no other causes. A COVID-19 test returned negative. Dr. Sanjay Verma, based in California, reviewed the documents in the Watts case and said that he believed the death was caused by the COVID-19 vaccination.

Pfizer did not respond to a request for comment.

Watts Took Vaccine Under Pressure

The community college mandate included a 35-day grace period following approval by the U.S. Food and Drug Administration (FDA) of a COVID-19 vaccine.

The Moderna, Pfizer, and Johnson & Johnson vaccines were given emergency use authorization early in the pandemic. The FDA approved the Pfizer shot on Aug. 23, 2021. It was the first COVID-19 vaccine approval. But doses of the approved version of the shot, branded Comirnaty, were not available for months after the approval.

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Tyler Durden Fri, 06/02/2023 - 23:00

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US Sent Billions in Funding to China, Russia For Cat Experiments, Wuhan Lab Research: Ernst

US Sent Billions in Funding to China, Russia For Cat Experiments, Wuhan Lab Research: Ernst

Authored by Mark Tapscott via The Epoch Times…



US Sent Billions in Funding to China, Russia For Cat Experiments, Wuhan Lab Research: Ernst

Authored by Mark Tapscott via The Epoch Times (emphasis ours),

Hundreds of millions of U.S. tax dollars went to recipients in China and Russia in recent years without being properly tracked by the federal government, including a grant that enabled a state-run Russian lab to test cats on treadmills, according to Sen. Joni Ernst (R-Iowa).

Sen. Joni Ernst (R-Iowa) speaks at a Senate Republican news conference in the U.S. Capitol on March 9, 2022. (Anna Moneymaker/Getty Images)

Ernst and her staff investigators, working with auditors at the Government Accountability Office (GAO) and the Congressional Research Service, as well as two nonprofit Washington watchdogs—Open The Books (OTB) and the White Coat Waste Project (WCWP)—discovered dozens of other grants that weren’t counted on the federal government’s internet database.

While the total value of the uncounted grants found by the Ernst team is $1.3 billion, that amount is just the tip of the iceberg, the GAO reported.

Among the newly discovered grants is $4.2 million to China’s infamous Wuhan Institute of Virology (WIV) “to conduct dangerous experiments on bat coronaviruses and transgenic mice,” according to a May 31 Ernst statement provided to The Epoch Times.

The $4.2 million exposed by Ernst is in addition to previously reported funding to the WIV for extensive gain-of-function research by Chinese scientists, much of it funded in whole or part prior to the COVID-19 pandemic by National Institutes for Health (NIH) grants channeled through the EcoHealth Alliance medical research nonprofit.

The NIH has awarded seven grants totaling more than $4.1 million to EcoHealth to study various aspects of SARS, MERS, and other coronavirus diseases.

Buying Chinese Puppy Parts

As part of another U.S.-funded grant, hearts and other organs from 425 dogs in China were purchased for medical research.

These countryside dogs in China are part of the farmer’s household; they were mainly used for guarding. Their diet includes boiled rice, discarded raw food animal tissues, and whatever dogs can forage. These dogs were sold for food,” an NIH study uncovered by the Ernst researchers reads.

Other previously unreported grants exposed by the Ernst team include $1.6 million to Chinese companies from the federal government’s National School Lunch Program and $4.7 million for health insurance from a Russian company that was sanctioned by the United States in 2022 as a result of the invasion of Ukraine.

“It’s gravely concerning that Washington’s reckless spending has reached the point where nobody really knows where all tax dollars are going,” Ernst separately told The Epoch Times. “But I have the receipts, and I’m shining a light on this, so bureaucrats can no longer cover up their tracks, and taxpayers can know exactly what their hard-earned dollars are funding.”

The problem is that federal officials don’t rigorously track sub-awards made by initial grant recipients, according to the Iowa Republican. Such sub-awards are covered by a multitude of federal regulations that stipulate many conditions to ensure that the tax dollars are appropriately spent.

The GAO said in an April report that “limitations in sub-award data is a government-wide issue and not unique to U.S. funding to entities in China.”

GAO is currently examining the state of federal government-wide sub-award data as part of a separate review,” the report reads.

Peter Daszak, right, the president of the EcoHealth Alliance, is seen in Wuhan, China, on Feb. 3, 2021. (Hector Retamal/AFP via Getty Images)

The Eco-Health sub-awards to WIV illustrate the problem.

“Despite being required by law to make these receipts available to the public on the website, EcoHealth tried to cover its tracks by intentionally not disclosing the amounts of taxpayer money being paid to WIV, which went unnoticed for years,” Ernst said in the statement.

“I was able to determine that more than $490 million of taxpayer money was paid to organizations in China [in] the last five years. That’s ten times more than GAO’s estimate! Over $870 million was paid to entities in Russia during the same period!

Together that adds up to more than $1.3 billion paid to our adversaries. But again, these numbers still do not represent the total dollar amounts paid to institutions in China or Russia since those numbers are not tracked and the information that is being collected is incomplete.”

Adam Andrzejewski, founder and chairman of OTB, told The Epoch Times, “When following the money at the state and local level, the real corruption exists in the subcontractor payments. At the federal level, the existing system doesn’t even track many of those recipients.

“Without better reporting, agencies and appropriators don’t truly understand how tax dollars were used. We now know that taxpayer dollars are traded further downstream than originally realized with third- and fourth-tier recipients. These transactions need scrutiny. Requiring recipients to account for where and how they actually spend each dollar creates a record far better than agencies are capable of generating.”

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Tyler Durden Fri, 06/02/2023 - 19:40

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OraSure Technologies’ CFO Makes Bold Insider Purchase, Reigniting Investor Confidence

Executive Kenneth McGrath’s $500,000 buy read as promising signal about future for diagnostic test developer OraSure Technologies (NASDAQ:OSUR) saw…




Executive Kenneth McGrath’s $500,000 buy read as promising signal about future for diagnostic test developer

OraSure Technologies (NASDAQ:OSUR) saw a stock price re-rate on Thursday, climbing 11% after investors became aware of its CFO Kenneth McGrath buying shares in the diagnostic test developer.  This latest rally in OSUR stock, gives traders and investors hope that the strong momentum from the beginning of 2023 might return.

OSUR shares had mounted an impressive 54% rally for 2023 through to May 10, when the first-quarter results update spooked investors. 

The CFO’s trade was initially spotted on Fintel’s Insider Trading Tracker following the filing with the Securities and Exchange Commission.

Big Holdings Boost

In the Form 4 filing, McGrath, who assumed CFO duties in August 2022, disclosed buying 100,000 shares on May 30 in the approved trading window that was open post results.

McGrath on average paid $4.93 per share, giving the total transaction a value just shy of $500,000 and boosted his total share count ownership to 285,512 shares.

The chart below from the insider trading and analysis report for OSUR shows the share price performance and profit made from company officers in previous transactions:

OraSure Technologies

Prior to joining OraSure, McGrath had an impressive eight-year tenure at Quest Diagnostics (NYSE:DGX), where he rose to the position of VP of Finance before departing. This is the first time that the CFO has bought stock in the company since August 2022. It is also worth noting that the purchase followed strong Q1 financial results, which exceeded Street forecasts.

Revenue Doubles

In its recently published Q1 update, OraSure Technologies told investors that it generated a whopping 129% increase in revenue to $155 million, surpassing analyst expectations of around $123 million. 

Notably, the revenue growth was driven primarily by the success of OraSure’s COVID-19 products, which accounted for $118.4 million in revenue for the quarter and grew 282% over the previous year.

The surge in revenue for this product was largely driven by the federal government’s school testing program, which led to record test volumes. However, it is important to note that demand for InteliSwab is expected to decline in Q2 2023, prompting OraSure to scale down its COVID-19 production operations. As part of its broader strategy to consolidate manufacturing, the company plans to close an overseas production facility.

While the COVID-19 products division has been instrumental in OraSure’s recent success, its core business delivered stable flat sales of $36.6 million during the quarter. 

In terms of net income, OraSure achieved an impressive result of $27.2 million, or $0.37 per share, in Q1, marking a significant improvement compared to the loss of $19.9 million, or a loss of $0.28 per share, in the same period last year. This result exceeded consensus forecasts of $0.16 per share. As of the end of the quarter, the company held $112.4 million in cash and cash equivalents.

Looking ahead to Q2, OraSure has provided revenue guidance in the range of $62 to $67 million, reflecting the lower order activity from the US government with $25 to $30 million expected sales for InteliSwab. The declining Covid related sales have been a core driver of the share price weakness in recent weeks.

While sales are likely to fall in the coming quarters, one positive for the company is its low debt balance during this period of rising cash rates. The chart below from Fintels financial metrics and ratios page for OSUR shows the cash flow performance of the business over the last five years.

OraSure Technologies

Analyst Opinions

Stephen’s analyst Jacob Johnson thinks that outside of Covid, OSUR continues to execute on several cost and partnership initiatives which he believes appears to be bearing fruit. Johnson pointed out that three partnerships were signed during the quarter.

The analyst thinks that the ex-Covid growth story will be the new focus for investors from now on. The brokerage maintained its ‘equal-weight’ recommendation and $6.50 target price on the stock, matching Fintel’s consensus target price, suggesting OSUR stock could rise a further 29% in the next 12 months. 

The post OraSure Technologies’ CFO Makes Bold Insider Purchase, Reigniting Investor Confidence appeared first on Fintel.

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