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Bear of the Day: SP Plus (SP)

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SP Plus Corporation (SP - Free Report) took it on the chin during the height of the coronavirus pandemic in the second quarter. This Zacks Rank #5 (Strong Sell) is expected to see sales decline 56.2% in 2020.

SP Plus provides professional parking management, ground transportation, remote baggage check-in and handling, facility maintenance, security, event logistics, and other tech-driven solutions to aviation, commercial, hospitality, healthcare and government clients across North America.

Big Miss in Q2

On Aug 6, SP Plus reported its second quarter results and missed on the Zacks Consensus by 514%. Earnings were a loss of $0.86 versus the consensus of a loss of $0.14.

At the start of the pandemic, it put into place substantial cost reductions which enabled it to cut its second quarter adjusted G&A by 30%. It also had some contract re-negotiations and concessions from clients which allowed it to deliver free cash flow in the quarter of $13 million despite the COVID crisis.

Adjusted gross profit fell to $3.9 million from $61.9 million in the year ago quarter. The decline was due to the pandemic's impacts on the business as well as a $10.1 million provision for credit losses and legal settlements taken during the quarter.

In good news, it saw a progressive pick-up in activity throughout the quarter as businesses re-opened as restrictions eased. Clients also required their expertise with safety and social distancing mandates.

Earnings Estimates on the Decline

The analysts have been bearish on both 2020 and 2021.

The 2020 Zacks Consensus estimate has fallen to $1.25 from $1.89 in the last 3 months. That's a decline of 54.2% from a year ago as SP+ made $2.73.

For 2021, the Zacks Consensus has also declined, and one analyst has cut in the last week, which has pushed the Zacks Consensus down to $1.76 from $2.27 over the last 3 months. But that is a rebound in earnings of 41%.

Sales are also expected to decline in 2020 with the analysts looking for $645.3 million. That's a decline of 56.2% from 2019 when sales were $1.47 billion.

Shares Still Down Big in 2020

Shares initially sold off in the March coronavirus sell-off and tried to recover but that recovery has stalled. Shares are still down 62% year-to-date.

They are now trading under what the March low was.

Are they a deal?

SP Plus didn't give any guidance. It did give an outlook and said that while it has seen improvement, it's unclear what the future impact of COVID-19 will have on its clients and on the nationwide economic recovery.

SP Plus now trades with a forward P/E of 12.9. But with those earnings on the decline, you have to be careful of value traps.

For those interested in investing in the parking business, it may be time to wait on the sidelines for more clarity.

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