With a $19.02 million market cap, Star Equity Holdings, Inc. (STRR) is a nano-cap diversified holding company that offers primarily healthcare and construction solutions in the United States and internationally. Formerly known as Digirad Corporation, the company has grown its business over the past few months, primarily relying on its KBS Builders business. STRR announced in October last year that KBS Builders had signed Phase 3 of its previously announced project with Tocci Building Corporation.

STRR paid a $0.25 dividend on its 10% Series A cumulative perpetual preferred stock on June 11, 2021. The stock’s price has surged 29.4% over the past month and 30.2% over the past three months to close yesterday’s trading session at $3.79. 

However, the company proposed adopting a Rights Agreement last month, subject to stockholder approval, to preserve the value of its significant U.S. net operating loss carryforwards (NOLs) and other tax benefits. STRR also sold certain operations this year. So, with the resurgence of the COVID-19 cases, STRR’s near-term prospects seem uncertain.

Here’s what we think could shape STRR’s performance in the near term:

Broad Portfolio of Products and Services

STRR operates through three business divisions: Healthcare (Digirad Health); Building & Construction; and Real Estate & Investments. Its Digirad Health segment designs , manufactures, and distributes diagnostic medical imaging products, and the Building & Construction segment designs and manufactures residential and commercial modular units and structural wall panels. Its Real Estate & Investments division owns and manages STRR’s real estate assets and makes strategic investments. Thanks to its wide portfolio of products and services, its total assets have grown at a 10.7% CAGR  over the past three years.

Mixed Financials

For the first quarter, ended March 31, 2021, STRR’s revenue from its construction segment increased 65% year-over-year to $9.05 million, driven primarily by increased output at its KBS business. However, the company’s healthcare segment revenue for the quarter decreased 2.7% year-over-year to $13.31 million. Its non-GAAP net loss from continuing operations increased 31.2% year-over-year to $1.74 million, while its non-GAAP loss per share came in at $0.35, compared to $0.65 in the prior-year period. Also, its total assets declined 7.8% sequentially to $81.39 million.

The Resurgence of COVID-19 Cases Raise Concerns

STRR’s Digirad Health segment continues to be impacted by the COVID-19 pandemic, with doctor offices not yet operating at full capacity. So, with the resurgence of COVID-19 cases, thanks to the rapid spread of the Delta variant, the company could continue to be negatively impacted. According to the U.S. Centers for Disease Control and Prevention (CDC) Director Dr. Rochelle Walensky, the more contagious Delta variant now accounts for  83% of sequenced samples in the United States.

In addition, STRR completed the sale of its mobile healthcare business—DMS Health Technologies, Inc.—on April 1, 2021. It also completed another small asset sale in February 2021.

Click here to checkout our Healthcare Sector Report for 2021

POWR Ratings Reflect Uncertain Near-Term Prospects

STRR has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. STRR has a C grade for Growth. This is justified because analysts expect its revenue to decline 11.6% year-over-year to $26.82 million for the quarter ending September 30, 2021. Also, its EPS is expected to remain negative in the current year.

The stock has a C grade for Quality, which is consistent with its negative values for trailing-12-month EBITDA margin and levered FCF margin, versus the 5.37% and 1.64% respective industry averages..

STRR has a C grade for Value, which is in sync with its 26.75x forward EV/EBITDA, which is 68.1% higher than the 15.91x industry average of . Also, it has a D grade for Stability.

STRR is ranked #54 of 80 stocks in the Medical – Services industry. Click here to see STRR’s ratings for Momentum and Sentiment also.

Better than STRR: Click here to access several top-rated stocks in the Medical – Services industry.

Bottom Line

While STRR’s construction segment gained on the back of its KBS business, its healthcare segment might continue to suffer because of the resurgence of COVID-19 cases. Also, its EPS is expected to remain negative for the about-to-be-reported quarter ended June 30, 2021, and for this year. So, we think it’s wise to wait for a better entry point for adding the stock to one’s  portfolio.

STRR shares were trading at $3.72 per share on Friday morning, down $0.07 (-1.85%). Year-to-date, STRR has gained 3.62%, versus a 18.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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