Noble initiates on 'Mini Berkshire in the making' Star Equity with 60% upside

Noble Capital Markets has initiated coverage of Star Equity Holdings with an “outperform” rating and a valuation implying upside of about 60% from current levels. It says the diversified holding company is seeking replicate the playbook of Warren Buffett's Berkshire Hathaway in the micro-cap space.

Noble Capital Markets has initiated coverage of Star Equity Holdings with an “outperform” rating and a $16 target price, for almost 61% upside from the closing price on Wednesday. In trading on Thursday, Star Equity shares were up about 0.2% at $9.95 apiece as of this writing.

“We view Star as a mini Berkshire Hathaway in the making, but with a focus on the micro-cap space,” Noble wrote.

Star is a diversified holding company with four divisions. One produces modular buildings, wall panels and columns; the second, through Hudson Talent Solutions, develops workforce and talent acquisition strategies; the third provides leasing, sales, and repair of equipment used in the oil and gas, geothermal, mining and water-well industries; and the fourth division makes strategic investments in micro-cap companies, Noble noted.

These could be “potential acquisition targets” or just "strategic investments in companies that management has determined are trading at a discount to fair value,” the report said.

This approach mirrors the strategy used by Berkshire Hathaway, which seeks to buy “great businesses at a fair price” and focuses on making investments in undervalued businesses for the long term.

For the third quarter, Star Equity reported revenue growth of 30% year over year to $48 million, while its net loss widened to $1.8 million from $0.8 million a year earlier. Noble notes that the company has not yet posted a string of comparable quarters and expects this to continue given the possibility of new deals.

Year to date, Star Equity shares have fallen nearly 12%. The stock currently has two Wall Street analyst ratings, both "buy." The average target price is $16.67 per share, implying upside of nearly 63% from the latest closing price.