Enzo Biochem: Is This Time Finally Different?

seekingalpha07-17

Enzo Biochem shareholders frustrated with lack of capital returns following Clinical Labs sale to Labcorp Holdings.Stock trading near historic lows, but potential for attractive returns with ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nEnzo Biochem: Is This Time Finally Different?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-17 12:49 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4704471-enzo-biochem-is-this-time-finally-different><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Enzo Biochem shareholders frustrated with lack of capital returns following Clinical Labs sale to Labcorp Holdings.Stock trading near historic lows, but potential for attractive returns with ...</p>\n\n<a href=\"https://seekingalpha.com/article/4704471-enzo-biochem-is-this-time-finally-different\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LH","symbol_name":"徕博科","start_time":0,"source_url":"https://seekingalpha.com/article/4704471-enzo-biochem-is-this-time-finally-different","article_id":"2452901327","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1359375687/image_1359375687.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2452901327","pubTimestamp":1721191777,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Setup   ENZ 10 Year Chart  The stock is currently trading within a few cents of historic lows, but I believe the pieces are in place make forward returns attractive. The Enzo business has simplified, solely operating a Life Sciences division that focuses on drug development, research, and quality control:   ENZ Life Science Offering  There are multiple activists involved in the stock, and the new chairman brings a tremendous resume. The new CEO was granted calls with a strike at $2 a share, and receives 1% of the sale value of their Life Sciences subsidiary in excess of $50m. Incentives abound for her to maximize the outcome for buyers at the current stock price. Valuation After the Clinical divestiture, Enzo is now composed of their Life Sciences business and a pile of cash. Life Sciences is producing about $32m of run-rate revenue, growing around 10%, and generating approximately 50% gross margins. Recent pitches have suggested 6x sales/20x EBITDA for assets in this space. I doubt En","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LH":"徕博科","BRKR":"布鲁克","BK4588":"碎股","BK4550":"红杉资本持仓","LU0757428866.USD":"THREADNEEDLE (LUX) GLOBAL SMALLER COMPANIES \"AE\" (USD) ACC","LU1815336091.USD":"THREADNEEDLE (LUX) GLOBAL SMALLER COMPANIES \"AUP\" (USD) INC","LU0006061336.USD":"Blackrock US Small and MidCap Opportunities A2 USD","BK4212":"包装食品与肉类","LFCR":"LIFECORE BIOMEDICAL INC","BK4121":"生命科学工具和服务","ENZ":"恩佐生化","BK4196":"保健护理服务","BK4585":"ETF&股票定投概念"},"translate_title":"Enzo Biochem：这次终于不一样了吗？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BRKR":1,"ENZ":1,"LFCR":1,"LH":1},"content_text":"Enzo Biochem shareholders frustrated with lack of capital returns following Clinical Labs sale to Labcorp Holdings.Stock trading near historic lows, but potential for attractive returns with simplified Life Sciences division and strong CEO incentives.Valuation potential of $2.00-3.22/share with $35m net cash and $75-120m business value, pending resolution of legal issues and potential share buybacks.   ViktorCap If you're a shareholder of Enzo Biochem (NYSE:ENZ), you're likely frustrated. The investment thesis hasn't changed much in two years; however, shareholders have been bludgeoned by one thing after another while awaiting Enzo’s liquidation following their 2023 sale of the Clinical Labs business to Labcorp Holdings (LH). Is it finally time to buy the beaten-down story, or are investors better off avoiding this mess? Setup   ENZ 10 Year Chart (Seeking Alpha) The stock is currently trading within a few cents of historic lows, but I believe the pieces are in place make forward returns attractive. The Enzo business has simplified, solely operating a Life Sciences division that focuses on drug development, research, and quality control:   ENZ Life Science Offering (Enzo Website) There are multiple activists involved in the stock, and the new chairman brings a tremendous resume. The new CEO was granted calls with a strike at $2 a share, and receives 1% of the sale value of their Life Sciences subsidiary in excess of $50m. Incentives abound for her to maximize the outcome for buyers at the current stock price. Valuation After the Clinical divestiture, Enzo is now composed of their Life Sciences business and a pile of cash. Life Sciences is producing about $32m of run-rate revenue, growing around 10%, and generating approximately 50% gross margins. Recent pitches have suggested 6x sales/20x EBITDA for assets in this space. I doubt Enzo achieves this lofty valuation (Lifecore (LFCR) hasn't either); however, is 2-4x sales or 5-8x GM an unreasonable price for a strategic acquirer? I doubt it. This would put a $75-120m ballpark valuation on the business, which seems attainable.  If investors are looking for spicy upside valuation comps with similar revenues, I have a few:   In 2021, BioVision was acquired for more than 10x trailing revenues   In 2022, Albumedix was acquired for about 12x 2022 revenue   In 2023, Abcam, the Albumedix acquirer, was bought by Danaher for about 10x revenue   In May, Bruker (BRKR) bought ELITech for 5.8x FY23 sales   With any set of comparisons there will be nuances, but I assume a profitable, growing business like Enzo's Life Sciences division has some upside to the $50m hurdle set for the CEO. After adjusting for runoff liabilities from the Clinical sale, some debt that was recently paid off, and accrued legal liability, there should be about $45m of cash on the balance sheet. Note, reasonable estimates put the legal exposure around $3m, while the company has $1.2m accrued. The other major concern is cash burn at the corporate level, but that's slowed to less than $1.5m/quarter after you back out the paying down of the divested operations and recognize the minimal required CapEx:   ENZ Cash Burn (TIKR) I'm going to assume another $10m of cash burn before the ultimate divestiture of the Life Science business in the aforementioned price range. So $35m net cash and a business worth $75-120m combine for a $110-155m valuation. With approximately 55m fully diluted shares outstanding, this would land liquidation at $2.00-2.81/share. Where the math improves is if the company tenders for a material portion of the outstanding shares at current prices. I expect many investors are disappointed at the lack of capital return after the last divestiture, which I assume is due to the Company’s conservatism over the legal exposure from the data breach. In the event the outstanding legal questions are resolved, I wouldn't be shocked to see the company tender for a material portion of shares between $1 and $2. Say 10m shares are bought back at $1.50, the liquidation math shifts to $95-145m over 45m shares, or $2.11-3.22/share. The more shares taken out below $2 the better under this approach. Risks  If the Life Sciences division is worth less than $50m, the CEO may not be properly incentivized to sell, and delay liquidation. Given the long-suffering shareholders involved, however, I expect resolution to the situation sooner rather than later. I also don't think the CEO would have agreed to the compensation package she has if the business didn't have a market value more than $50m. The litigation from the data breach may take a long time to resolve or result in a higher settlement than I estimated above, reducing returns. A motion to dismiss is currently pending. Cash burn could accelerate if Enzo tries to invest more to grow their Life Sciences business. Hopefully, such spending would be accretive to the liquidation value. The current <$1.5m a quarter run rate and $57m cash balance suggests cash burn is not a primary concern now. The Enzo story has been one of continued disappointment, and the possibility remains that new and yet unknown risks lurk around the corner.  Conclusion The drawn-out and painful Enzo liquidation story may be reaching the final innings, and the Company appears to be trading at an attractive valuation relative to the remaining assets. With some resolution on the remaining overhangs, I can see a path to 100-200% upside for shares, with a hefty cash balance cushioning your downside. Disagree? Let me know why in the comments.  Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2452901327"}