Is DLH Holdings Corp. (DLHC) Stock Priced for the “Worst Case” Scenario?
Investment management company Cove Street Capital recently released its “Small Cap Value Fund” fourth quarter 2023 investor letter. A copy of the same can be downloaded here. In 2023, the fund returned 18.33% compared to 16.93% for the Russell 2000 Index and 15.26% for the Russell 2000 Value Index. The fund returned 8.35% in the fourth quarter compared to 14.03% and 15.26% for the indexes, respectively. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
In its Q4 2023 investor letter, Cove Street Capital featured stocks such as DLH Holdings Corp. (NASDAQ:DLHC). Headquartered in Atlanta, Georgia, DLH Holdings Corp. (NASDAQ:DLHC) offers technology-enabled business process outsourcing program management solutions and public health research and analytics. On January 5, 2024, DLH Holdings Corp. (NASDAQ:DLHC) stock closed at $15.75 per share. One-month return of DLH Holdings Corp. (NASDAQ:DLHC) was 11.78%, and its shares gained 41.89% of their value over the last 52 weeks. DLH Holdings Corp. (NASDAQ:DLHC) has a market capitalization of $221.566 million.
Cove Street Capital stated the following regarding DLH Holdings Corp. (NASDAQ:DLHC) in its fourth quarter 2023 investor letter:
"DLH Holdings Corp. (NASDAQ:DLHC) is a consultant that provides a wide range of services to various Federal health agencies such as the Veterans Administration and Centers for Disease Control. It offers public health and life sciences services and has added high margin cybersecurity capabilities via its acquisition of Grove Resources late in 2022. This is an asset-lite, high free cash flowing business with generally sticky 3 to 5 year contracts. This company trades at a discount to its peers—despite having best in class margins—largely due to an overhang from a high revenue but low margin incumbent contract that the government continues to drag its feet on re-awarding. Our research indicates the stock continues to be priced for a “worst case” scenario with respect to this renewal, and other likely outcomes present a high-upside case. Furthermore, management has been astutely using cash to acquire smaller players in adjacent capabilities—such as Grove—to diversify revenue across more contracts. CEO Zach Parker came in seven years ago when the company was doing $2m in EBITDA; we expect them to deliver ~$45m in EBITDA in FY24. DLHC was a top performer for us in the fourth quarter as the management team continues to execute on its strategy and positions the company to be sold to a larger player."
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DLH Holdings Corp. (NASDAQ:DLHC) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 6 hedge fund portfolios held DLH Holdings Corp. (NASDAQ:DLHC) at the end of third quarter which was 8 in the previous quarter.
We discussed DLH Holdings Corp. (NASDAQ:DLHC) in another article and shared Cove Street Capital's views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
