EVRI posts in-line 2019 adj. EBITDA with 2020E guidance implying 7.5%-11% growth to $272-$282 million; 2020E FCF is expected to more than double to $95-$100 million; a $10 million share repurchase is authorized reflecting, in our view, both its improving financial/leverage profile and the stock’s recent decline (which we think has presented an attractive buying opportunity)

• In 2019, EVRI posted consolidated sales growth of 14% to $533 million (vs. consensus of $521 million) with 10% growth in adj. EBITDA to $253 million (vs. the $252-$255 million guide) and a 77% increase in FCF to ~$44 million (vs. the $43-$48 million guide).
• By segment, Games sales and adj. EBITDA increased ~9% to $283 million and ~$138 million, respectively, while FinTech sales increased ~19% t0 $250 million with adj. EBITDA growth of 11% to $115 million.
• EVRI’s pro forma leverage ratio improved to 3.9x (compared with 4.9x in 2018) with further targeted reduction to 3.0x-3.5x.
• Notably, EVRI authorized a $10 million buyback, seemingly reflecting both its improving financials and the stock’s recent decline (which we think has been somewhat disconnected from fundamentals and presents an attractive buying opportunity).
• For 2020, EVRI expects top-line growth in the high single-digit to low double-digit range along with 7.5%-11.0% growth in adj. EBITDA to $272-$282 million (vs. current consensus of $278 million). FCF is expected to be $95-$100 million (on cap ex of $114-$120 million). [Note: EVRI has not experienced any “discernible” COVID-19 impact to-date and guidance includes no effect. For our part, we think EVRI’s regional U.S. footprint provides insulation on both an absolute and relative basis.]
• Our fair value estimate remains $13 per share, reflecting a blended multiple of ~8x on our 2020E EBITDA estimate of ~$250 million as well as net debt of $965.5 million.
• [Note: our adj. EBITDA forecasts do not add back stock-based compensation and our applied segment valuation multiples of 7.0x for Games and 10.5x for FinTech represent modest discounts to their respective peer groups, which trade at ~7.5x and 11x, respectively.]

IR Completes Spin-Off of Industrial Business and Merger with GDI; Rate TT at BUY with $116 FVE, IR at HOLD with $36 FVE

• On March 2, 2020, Ingersoll-Rand plc announced that the company has completed the spin-off of its Industrial business and subsequent merger with Gardner Denver Inc.
• The Industrial segment was merged with Gardner Denver Inc. (formerly NYSE: GDI) in a Reverse Morris Trust (RMT) transaction. The combined company assumed the Ingersoll-Rand corporate moniker and now trades under the symbol “IR” one the NYSE. Post-spin, the previous Ingersoll-Rand has changed its name to Trane Technologies and trades under the symbol “TT” on the NYSE.
• In conjunction with the RMT, GDI issued a $1.9 billion dividend to the former IR. Former IR shareholders of record as of February 24, 2020, now own 50.1% of the New Ingersoll-Rand company.
• Previously, IR issued initial 2020 guidance for Trane Technologies, which includes organic revenue growth of ~3.0% – ~5.0% (~$13.5 billion to ~$13.7 billion) and an adjusted operating margin of 15.3% to 15.7% (implying 30 – 70 basis points of expansion).
• Considering current market conditions, we lower our base year revenue estimate for both TT and New IR by 2% in an attempt to more accurately reflect the current market realities and potential slow down both companies may experience. For context Emerson Electric Co. (NYSE: EMR) expects a 2Q 2020 revenue impact of $100 to $150 million, which equates to approximately just under 1% of annual revenue.
• Based on revised estimates of EBITDA we now fairly value TT at $116 per share (previously $119 per share) and IR at $36 per share (previously $37 per share).
• Given favorable industry and Climate segment trends, including strength in the North American commercial HVAC end market, we rate TT at BUY with a $116 per share fair value estimate while acknowledging that to a degree the value creation from the separation has been pulled forward ahead of the transaction, which may make TT less attractive to “new money”.
• We rate shares of IR at HOLD with a $36 per share fair value estimate.
• For more details, please refer to the Ingersoll-Rand plc Spin-Off Report dated January 13, 2020, and UPDATEs dated January 29, 2020, and February 14, 2020.

CONEXPO, one of the three primary drivers of VVI’s positive “show-rotation” in 2020, remains scheduled to proceed “as planned” on March 10^th-14^th in Las Vegas, NV

• As of the most recent update (this morning), CONEXPO, the largest construction trade show in North America, will proceed “as planned” in Las Vegas on March 10^th-14^th. [Updates are at https://www.conexpoconagg.com/visit/covid-19-update/].
• On the attendee side, event organizers are still expecting more than 130,000 attendants (with advance registrations running “well-ahead” of its last event in 2017).
• On the exhibitor side, organizers indicate the have been “NO” major cancellations (with most exhibitors already on-site and many Chinese companies having their own U.S.-based operations).
• All told, potential cancellations of China-based exhibitors and attendees, which reportedly comprise less than 2% of the 2.7 million sq. ft. of exhibit space and ~1% of total registrations, will seemingly have a very limited impact on the event.
• For context, CONEXPO along with MINExpo (mining) and IMTS (manufacturing) in September 2020 (in Las Vegas and Chicago, respectively) are the primary drivers of the ~$100 million of positive “show-rotation” VVI expects in 2020.  Notably, even on organic basis, VVI is projecting “low-single digit” same show-revenue growth for GES in 2020.
• On the Pursuit side, we think it is important to note that VVI’s most recent guidance suggests the segment will surpass the $250 million sales threshold, which we discern is the starkest benchmark precipitating an eventual split of VVI’s disparate assets, during 2020.
• Our fair value estimate remains $74 per share based on a 7.0x multiple on 2020E/2021E blended EBITDA of ~$94 million at GES and a 12x multiple on our 2021E EBITDA estimate of $99 million at Pursuit as well as projected net debt of ~$237.5 million.

LNDC is exploring strategic options for CF’s vegetable bag & tray business; F2020 adj. EBITDA guidance is lowered to $30-$34 million (from $36-$40 million)

• Landec has retained banker-William Blair to explore strategic options for Curation Foods’ legacy vegetable bag & tray business (not including green beans), which generated ~$160 million of sales (but “no” positive EBITDA) in F2019.
• We discern potential options include an outright sale (with management indicating several possible strategic bidders) or a significant rationalization of the business. Ultimately, these actions, along with management’s broader operational efforts, are expected to result in a less volatile (e.g. weather) CF segment with F2021 run-rate organic sales growth of ~5% as well as gross and adj. EBITDA margin profiles of 11%-14% and 4%-6%, respectively (compared with ~10% and 3% in F2019).
• On a less positive note, LNDC lowered full-year F2020 guidance; management now expects consolidated top-line growth of 4%-6% (previously 8%-10%) with EPS of $0.16-$20 (previously $0.28-$0.32) and adj. EBITDA of $30-$34 million (previously $36-$40 million) on the accelerated reduction in the aforementioned bag business (particularly in 4Q F2020) as well as increased legal and marketing (primarily on Yucatan Squeeze) spend. While LNDC lowered 3Q F2020 expectations at Lifecore (due to sales timing) it original full-year targets for the segment remain intact.
• Another area of note is that at the end of 2Q F2020 LNDC’s leverage and fixed-coverage ratios were 4.9x and 1.5x (compared with covenants of 5.0x and 1.2x), respectively. That said, management indicates it is working closely with lenders and is “confident” a deal (with the anecdotal potential of offering relief through F2021) will be reached.
• Our fair value estimate remains ~$13 per share, based on an unchanged blended multiple of ~11x, F2021 adj. EBITDA of ~$45 million (previously $46.5 million) and net debt, incl. the Windset investment, of $130 million.

CNDT posts in-line 2019 adj. EBITDA with implied 2020 guidance of $428-$479M (vs. consensus of $463M); end of the formal strategic review is clearly a negative (but opportunistic asset sales are still eyed); fair value reduced to $6.50 (from $8.50) given the lack of apparent near-term catalyst

• CNDT posted consolidated 2019 sales, ex-divestitures, down 4.5% to $4.43B (vs. our $4.41B estimate and consensus of $4.44B) with adj. EBITDA down ~8% at $493M (vs. our $472M estimate and consensus of $492M).
• The net leverage ratio was 2.1x (compared with 1.2x in 2018, management’s 2.0x-2.5x target and its covenant of 3.75x).
• For 2020, consolidated sales are projected to decline 6%-8% with an adj. EBITDA margin of 10.5%-11%, implying sales of $4.075-$4.164B and adj. EBITDA of $428-$479M (vs. our $448M forecast and consensus of $463M). Free cash flow is expected to be 15%-20% of 2020E adj. EBITDA.
• Anecdotally, management expects top-line growth to persist at Transportation (at a moderated rate) in 2020 while sales at Commercial and Government are expected to decline 10% and 6%, respectively.  For 2021, CNDT aspires to see sales flatten with a return to growth in 2022 (and a relatively consistent margin profile). The long-term margin goal remains 15%.
• While the conclusion of the formal strategic review without a value-unlocking transaction (albeit ostensibly with Mr. Icahn’s tacit approval) is clearly a disappointment we note management indicates it will continue to evaluate opportunistic divestitures (while remaining price disciplined). That said, the lack of an apparent near-term catalyst surely shifts the story to more of a longer-term turnaround/value play (that is trading at a relatively undemanding multiple of ~5x 2020E EV/EBITDA).
• In that context, we reduce our fair value estimate to ~$6.50 per share, reflecting a blended multiple to ~6x (reduced from 7x to eliminate potential take-out premiums) on 2020E adj. EBITDA of ~$441M (down from $447.5M) and net debt of $1.21B (previously $1.29B).

LB to sell a 55% stake in Victoria’s Secret to Sycamore Partners for $525 million; Les Wexner to step down from the CEO & Chairman roles; 4Q 2019 EPS guidance maintained

• LB announced a deal to separate Victoria’s Secret (VS), including Lingerie, Beauty and Pink, into a private-held entity that will be majority-owned by private-equity firm Sycamore Partners (with the goal of returning VS to historical levels of profitability).
• Bath & Body Works (B&BW) will remain a standalone public company.
• Under the transaction, Sycamore will purchase a 55% stake in VS for ~$525 million (or, including certain liabilities, an implied total enterprise value of $1.1 billion, which trailed our prior VS valuation of ~$2.1 billion). LB will retain a 45% interest in VS (providing upside optionality to a turnaround) and use proceeds from the transaction to reduce debt.
• Additionally, LB founder, Les Wexner, will step down as CEO & Chairman (while retaining a board seat as Chairman Emeritus). Andrew Meslow, current COO of B&BW, will become LB’s CEO and join the Board.
• The Board also extended its agreement with activist-investor, Barington Capital, to serve as a special advisor to LB.
• The company maintained its previous 4Q 2019 EPS guidance of $1.85-$2.00 per share (on a total comparable sales decline of 2%, consisting of 10% growth at B&BW and a 10% decline at VS).  The company plans to report results after the market close on February 26^th with a conference call the following morning at 9 a.m. (EST).
• Assuming slightly less than $2 per share of value from its 45% stake in VS (down from $7) as well as ~$325 million of expected debt repayment, our fair value estimate for LB is reduced to $25.50 per share (from $30).  That said, we will likely fine tune these initial estimates as more details on the transaction and go-forward plans are ascertained. 

Drop Coverage of Nuance Communications Inc. Effective Immediately

• On October 1, 2019, Nuance Communications Inc. (NASDAQ: NUAN) completed the spin-off of Cerence Inc. (NASDAQ: CRNC).
• Given the transaction has now passed our coverage mandate of 90 days post-spin, we DROP coverage of Nuance effective immediately.
• Our prior estimates and fair values for NUAN should no longer be relied on.

Drop Coverage of Cerence Inc. Effective Immediately

• On October 1, 2019, Nuance Communications Inc. (NASDAQ: NUAN) completed the spin-off of Cerence Inc. (NASDAQ: CRNC).
• Given the transaction has now passed our coverage mandate of 90 days post-spin, we DROP coverage of Cerence effective immediately.
• Our prior estimates and fair values for CRNC should no longer be relied on.

IR to Complete Spin-Off of Industrial Business and Merger with GDI on February 29, 2020; Maintain BUY and $151 FVE on IR; Maintain HOLD and $37 FVE on GDI

• On February 14, 2020, before the market open, Ingersoll-Rand plc (NYSE: IR) announced that the company will complete the spin-off of its Industrial business, on February 29, 2020.
• The Industrial segment will merge with Gardner Denver Inc. (NYSE: GDI) in a Reverse Morris Trust (RMT) transaction. The combined company will assume the Ingersoll-Rand corporate moniker and trade under the symbol “IR”. Post-spin, the current Ingersoll-Rand will change its name to Trane Technologies and trade under the symbol “TT”.
• In conjunction with the RMT, GDI will dividend $1.9 billion in cash to the current IR. IR shareholders of record as of February 24, 2020, will own 50.1% of the New Ingersoll-Rand company.
• Previously, IR issued initial 2020 guidance for Trane Technologies, which includes organic revenue growth of ~3.0% – ~5.0% (~$13.5 billion to ~$13.7 billion) and an adjusted operating margin of 15.3% to 15.7% (implying 30 – 70 basis points of expansion).
• Based on the mid-point of IR’s guidance, TT would earn $2.15 billion in EBITDA in 2020. Assuming 4% revenue growth and 15.5% EBITDA margins in 2021, we forecast $2.2 billion of 2021 EBITDA. Applying a 14.0x multiple and accounting for $2.4 billion net debt, post spin TT shares would be fairly valued at $119 per share.
• Incorporating 50.1% ownership interest in New Ingersoll, a pre-spin fair value estimate of $151 per share is derived for IR.
• Given favorable industry and Climate segment trends, including strength in the North American commercial HVAC end market, we maintain our BUY rating on pre-spin IR while acknowledging that to a degree the value creation from the separation has been pulled forward ahead of the transaction, which may make pre-spin IR less attractive to “new money”.
• We maintain our HOLD rating and $37 per share FVE on GDI.
• For more details, please refer to the Ingersoll-Rand plc Spin-Off Report dated January 13, 2020, and UPDATE dated January 29, 2020.

HE posts 2019 EPS growth of 8% to $1.99 and issues 2020E EPS guidance of $1.90-$2.10; PBR remains a risk, in our view

• HE posted 2019 consolidated sales growth of 0.5% to $2.875 billion (compared with our $2.937 billion estimate and consensus $2.9 billion) with EPS growth of 8% to $1.99 (versus our $1.92, consensus of $1.91 and guidance of $1.85-$2.05).
• Utility segment sales were essentially flat at $2.545 billion with EPS up 9% to $1.43 (compared with our $1.41 and guidance of $1.40-$1.47). Segment ROE was 7.8% (compared with our 8.0% forecast and 7.6% in 2018).
• As previously reported, Bank segment sales rose 4.5% to ~$328.5 million with EPS up ~7.5% to $0.81 (incl. $0.05 of one-time gains on the sale of real estate).
• The company issued 2020E consolidated EPS guidance (see Exhibit #1 on page 2) of $1.90-$2.10 (compared with our $2.02 estimate and consensus of $2.00).
• At the Utility segment, 2020E EPS is projected to be $1.46-$1.54 on rate base growth of ~4%.  The rate base is expected to grow 4%-6% through 2022 (down from previous guide of 5%-7%). Utility cap ex is forecasted to be self-funded at ~$360 million in 2020E with cap ex of ~$400 million in 2021-2022E (down from previous commentary of $400-$500 million).
• At the Bank segment, 2020E EPS is forecasted to be $0.73-$0.80 on low- to mid-single digit earning asset growth and a net interest margin of 3.7%-3.8% (compared with 3.85% in 2019).
• As expected, HE increased its annual dividend ~3% to $1.32 per share (from $1.28), implying a current yield of ~2.7% (see Exhibit #2 on page 2).
• Our fair value estimate is modestly increased to $40 per share (from $38.50; see Exhibit #3 on page 2) based on a blended ~18x multiple on 2021E EPS of $2.23 (previously $2.16).
• We continue think the evolving regulatory environment in Hawaii (i.e. PBR in Dec. 2020), amid historically high valuations (i.e. 22.3x 2021E EPS) warrant a more cautious stance than what we perceive the “market” has currently discounted.