Patriot National Inc (PN) - An Evaluation
Who is Patriot National?
http://www.patnat.com/
Patriot National is an independent national provider of comprehensive technology-enabled outsourcing solutions that help insurance carriers, employers and other clients mitigate risk, comply with complex regulations and save time and money. They offer a full suite of end-to-end insurance related and specialty services that allow our clients to improve efficiencies and reduce expenses through their value-added processes. The core of their value proposition includes the benefit of a “one-stop” solution with their broad array of offered services, scalable, state-of-the-art technology and solutions to complex business and regulatory processes. Their goal is to be the preferred provider of mandatory employer services such as risk management services, health and welfare services, employee onboarding and compliance services.
Patriot National Inc is an insurance play that has seen its stock tumble after the company closed a shelf offering of stock and warrants. The CEO is the major shareholder and pledged not to sell any stock in 2016. This is a Zacks Rank #1 (Strong Buy) that is down roughly 55% over the last month. It had an IPO on Jan 16, 2015 and has a market cap of $160M yesterday.
How did you learn about them?
A stock screen search for stocks with high earnings growth and high profit margin.
Are they growing Revenue?
For a look at Revenue:
2012: 38.4M
2013: 55.9M
2014: 117.3M
2015: ~210M
Sequential YoY increases are 46%, 110%, 79%.
How about adjusted earnings?
Q1 2014: 0.06 Q1 2015: 0.18 Q1 2016: 0.25 estimated
Q2 2014: (0.06) Q2 2015: 0.18 Q2 2016: 0.27 estimated
Q3 2014: 0.11 Q3 2015: 0.23 Q3 2016: 0.30 estimated
Q4 2014: 0.01 Q4 2015: 0.25est Q4 2016: 0.35 estimated
2014 total: 0.12 2015 total:0.84 2016 total:1.17
Sequential TTM earnings growth increases are 0.84/0.12 = 700%. With a PE 5.9/0.84 = 7.02 this gives a 1YPEG of 7.02/700 = 0.01!
Is there a reasonable PE?
It’s 7 as of this writing compared to an Industry Average TTM PE of 21.
Tell me more what they actually do?
They principally offer two types of services: front-end services, such as brokerage, underwriting and policyholder services, and back-end services, such as claims adjudication and administration. They provide our services either on an individual basis, as bundles of two or more services tailored to a client’s specific needs or on a turnkey basis where we provide a comprehensive set of front-end and back-end services to a client. They also offer specialty services currently including technology outsourcing and other IT services, as well as employment pre-screening and background checks. They generate fee revenue for their services from their clients based on (1) a percentage of premiums for the policies they service, (2) the cost savings they achieve for their clients or (3) a fixed fee for a particular service. Unlike their insurance and reinsurance carrier clients, they do not generate underwriting income or assume underwriting risk on workers’ compensation plans.
Do they have a moat?
They are growing about 50/50 organically AND thru acquisitions. They “expect this strong momentum to last for some time” as they are just now starting to see the benefits of the cross selling of their service offerings to their 124 insurance carriers which grew 3 times larger than their 2015 goal. They bid their Patriot Technology Software Solutions and won a new State customer, Missouri Employers Mutual, who is the state’s largest writer of worker’s compensation. That was their first time they went after a State company and they plan to expand to capture other States as well now.
What is your overall impression?
They made a mistake on the pulled back offering of stock and warrants and have been very oversold as a consequence in my opinion. I think given their multiyear growth of revenue and earnings that this is a growth stock at a value stock price. They have 18 different revenue streams and have over 3200 insurance agencies that are just now beginning to add the PN services. Their operating cash flow for 3Q 2015 was $10.8M which is 292% higher than 3Q 2014. The 2016 forecasted financials ARE going to be adjusted UP further as the CEO mentioned a couple of times in the last earnings call given the higher than planned growth this year (noting that much of that has not been adjusted into the 2016 forecasts yet). % of Shares Held by All Insider and 5% Owners is 62%. It is a MicroCap sized company so it has VERY high risk, but I think worth the high reward potential.
Now what do you fools think?