XELA Stock Heats Up After New Deal, Bearish Forecast Amid Weak Financials

Exela Technologies is on fire after announcing a $90 million deal. However, the forecast for XELA stock looks bearish due to its weak financials.

Mohit Oberoi, CFA - Author

Mar. 10 2021, Published 9:33 a.m. ET

Woman looking at documents and Exela logo
Source: istock, Exela Technologies Facebook

Exela Technologies (XELA) stock gained 179 percent on March 9 and was trading higher in pre-market trading on March 10. What’s the forecast for XELA stock in 2021? Is it a good stock to buy or should investors stay away after the surge?

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Exela is a BPA (business process automation) company that has 4,000 customers spread across 50 countries. The company counts 60 percent of Fortune 100 companies as its clients. It offers solutions for several industries including financial services, education, healthcare, and the public sector. The company has 23,000 employees that are spread across 23 countries.

XELA's stock price movement

Exela Technologies was formed in 2017 when the Quinpario Acquisition Corp. 2 SPAC (special purpose acquisition company) merged with Novitex Holdings and SourceHOV Holdings. While the stock has jumped sharply this week, it has fallen 87 percent since it was listed. After the spike on March 9, XELA stock is now up 372 percent for the last year.

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xela stock in free fall
Source: TIKR

XELA stock price chart

In December 2020, XELA appointed UBS to explore strategic alternatives. In January 2021, the company announced a reverse stock split of one for three. The split was done to comply with the Nasdaq listing requirements. Despite the recent surge, XELA stock trades below $5, which is the threshold for penny stocks, according to the SEC.

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XELA's stock news

On March 9, XELA announced a 10-year deal with an unnamed U.S. health insurance company. The deal is valued at $90 million. As part of XELA's relationship with the company, it booked $28 million in revenues in 2020. To put the deal in perspective, XELA reported revenues of $305 million in the third quarter of 2020.

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In the release, Exela Technologies said, “This venture is the first of its kind for Exela in the healthcare industry, as it involves the large-scale deployment of Exela’s digital exchange platform, PCH Global, in the cloud and onsite to deliver healthcare solutions.” 

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The company also said, “The venture involves the end-to-end processing of complex health insurance claims and multi-channel correspondence between the insurance company and their provider and member networks.”

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XELA's stock forecast

Since XELA is a penny stock, not many analysts cover it. According to the data compiled by CNN Business, only one analyst covers XELA stock. The analyst has a buy rating on the stock and a target price of $4.56, which is similar to XELA’s closing prices on March 9.

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Investors should wait on XELA stock.

XELA’s revenues have fallen on a YoY basis for the last six quarters. It has posted a net loss in all of the quarters since the beginning of 2016. The financials look terrible and the $90 million deal with the health insurance company might not be able to lift the tide for Exela Technologies.

Looking at the valuations, XELA is valued at an NTM EV-to-revenue multiple of 1.36x and an NTM EV-to-EBITDA multiple of 11.4x. The valuations look reasonable even though they have surged over the last year amid the spike in the stock price.

XELA stock was trading higher in pre-market trading on March 10. Investors seem bullish on the new contract. However, the company will need more than this deal to improve its financial conditions. Overall, the spike in XELA stock looks overdone and I wouldn't be surprised to see a pullback soon.


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