On Monday, Baird reiterated its Neutral rating on Vestis Corp (NYSE:VSTS) stock with a steady price target of $13.00. The firm's stance comes amid news that Elis has expressed interest in acquiring Vestis Corp.
In a recent statement, Elis highlighted its strategy to maintain financial leverage around 2.2 times. Given its current leverage of 2.1 times and Vestis's approximately 3.3 times (pro forma), this suggests a potential acquisition would likely involve a significant portion of Elis stock or possibly an Elis equity raise.
The analyst from Baird noted the development as incrementally negative for Vestis Corp shareholders, who might prefer a cash deal over stock. The concern arises from the financial leverage goals set by Elis, which indicate a deal structure that may not align with Vestis shareholder preferences. This assessment was made following Elis's confirmation of its interest in Vestis, which was initially reported by Reuters.
The potential acquisition by Elis, which is now public knowledge, has put a spotlight on the financial strategies of both companies. Elis's commitment to managing its leverage could shape the terms of any forthcoming deal, with a significant stock component likely if an agreement is reached.
Baird's unchanged price target of $13.00 for Vestis Corp reflects the firm's current valuation of the stock without assuming any premium for a potential acquisition. As the situation develops, shareholders and investors will be watching closely to see how the terms of any deal might affect their holdings.
The news of Elis's interest in purchasing Vestis Corp comes at a time when mergers and acquisitions are closely monitored for their impact on shareholder value and company strategies. As the details of the potential acquisition are negotiated, the market will continue to assess the implications for both Vestis Corp and Elis.
In other recent news, Vestis Corporation revealed a slight dip in revenue and adjusted EBITDA margin in its fiscal third quarter 2024 earnings call. The company reported a 1.6% decrease in revenue year-over-year and a 260 basis point reduction in adjusted EBITDA margin, standing at 12.4%.
Notably, Vestis's adjusted EBITDA for the quarter was $87 million, mirroring the previous quarter but down $20 million year-over-year. Despite these figures, the company has seen growth through new business wins and improved customer retention rates.
Further, Vestis has set a quarterly cash dividend of $0.035 per share, as approved by its Board of Directors. The dividend will be available to shareholders on record by the close of business on a date in September 2024, with the payment scheduled for October that same year.
The company's future dividend payments will remain at the discretion of the Board of Directors and will depend on various factors, including the company's financial health and market conditions.
Looking ahead, Vestis anticipates a sequential decline in EBITDA in the fourth quarter due to non-repeating one-time benefits from the third quarter.
However, the company aims for a leverage ratio between 1.5 and 2.5 times and remains confident in achieving this goal. These are the latest developments in the ongoing operations of Vestis Corporation.
InvestingPro Insights
As Baird maintains its Neutral stance on Vestis Corp (NYSE:VSTS), it is important for investors to consider additional financial metrics and analyst insights that could influence the stock's performance. According to InvestingPro data, Vestis Corp has a market capitalization of $1.9 billion and an attractive price-to-earnings (P/E) ratio of 14.32, indicating a potentially undervalued stock relative to earnings. The adjusted P/E ratio for the last twelve months as of Q3 2024 stands at 22.61, reflecting adjustments that may affect investor perceptions of value.
InvestingPro Tips also reveal that Vestis Corp has exhibited a strong return over the last three months, with an 18.14% price total return, signaling robust recent performance. Additionally, analysts highlight that the company has liquid assets that exceed its short-term obligations, suggesting a solid financial position for handling its debts in the near term. This could be particularly relevant in the context of a potential acquisition, where financial stability is key.
It's noteworthy that while some analysts have revised their earnings downwards for the upcoming period, others predict the company will remain profitable this year, with profitability also reflected over the last twelve months. These mixed signals may influence investor sentiment as they weigh the potential benefits and risks of the acquisition by Elis. For a comprehensive view of Vestis Corp's financial health and future prospects, including additional InvestingPro Tips, investors can visit https://www.investing.com/pro/VSTS.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.