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Summers Value Partners: “We Have a $90 Price Target on UFPT”

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Summers Value Partners, an investment management firm, published its “Summers Value Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. The Summers Value Fund LP (“the Fund”) returned 43.4% net for the full year 2021, outpacing the Russell 2000 Index ETF return of 13.7% and the Russell Micro-Cap Index ETF return of 17.8%. In the fourth quarter, the Fund returned 8.0% net1 relative to the Russell 2000 Index ETF return of 1.9% and the Russell Micro-Cap Index ETF return of -3.2%. The Fund has generated a cumulative 77.7% net1 return since inception compared to the Russell 2000 Index ETF return of 36.2% and the Russell Micro-Cap Index ETF return of 32.9% over the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Summers Value Partners, in its Q4 2021 investor letter, mentioned UFP Technologies, Inc. (NASDAQ: UFPT) and discussed its stance on the firm. UFP Technologies, Inc. is a Georgetown, Massachusetts-based manufacturing company with a $527.7 million market capitalization. UFPT delivered a -3.62% return since the beginning of the year, while its 12-month returns are up by 43.08%. The stock closed at $67.72 per share on February 3, 2022.

Here is what Summers Value Partners has to say about UFP Technologies, Inc. in its Q4 2021 investor letter:

"UFP Technologies is an outsourced manufacturer of medical device products located in Newburyport, Massachusetts. We have owned the company in the Fund for over one year with a cost basis in the low $50s. UFP features an experienced management team headlined by CEO Jeff Bailey. Mr. Bailey brings an owner-operator mentality to the business, which we find attractive. In our opinion, the company is misunderstood as it was historically a diversified manufacturer of products across multiple segments including the medical, consumer, automotive, aerospace, and industrial markets. In 2018, the company pivoted to focus on the medical segment, which has a more attractive long-term demand profile. We expect the company to generate an ever-growing percentage of sales from the medical segment over time, which should drive higher margins and a re-rating of the shares.

In late December, the company announced the acquisition of DAS Medical for $105 million or 8.9x trailing EBITDA. The acquisition of DAS is strategically aligned with the company’s core medical device manufacturing business and brings low-cost manufacturing capacity in the Dominican Republic. We believe the acquisition makes UFPT a more valuable partner to its customers. After the DAS acquisition, the company will generate over 70% of sales from the medical segment.

We believe that UFPT can generate free cash flow per share of $4.50 in 2023. The company is leveraged at 1.25x EBITDA following the DAS acquisition. We expect management to pay down the acquisition debt over the next two years given its prodigious free cash flow profile. We have a $90 price target on UFPT, which represents 20x our forward estimate of free cash flow."

Photo by National Cancer Institute on Unsplash

Our calculations show that UFP Technologies, Inc. (NASDAQ: UFPT) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. UFPT was in 11 hedge fund portfolios at the end of the third quarter of 2021, compared to 10 funds in the previous quarter. UFP Technologies, Inc. (NASDAQ: UFPT) delivered a 4.25% return in the past 3 months.

In September 2021, we also shared another hedge fund’s views on UFPT in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.