On Thursday, Carrier Global Corporation (NYSE:CARR) received a confirmation of an Outperform rating and a steady price target of $70 by a financial analysis firm. The affirmation comes as Carrier Global agrees to sell its Commercial and Residential Fire business to Lone Star Funds, marking the completion of its strategic transformation into a focused HVAC (Heating, Ventilation, and Air Conditioning) company by the end of 2024.
The sale of this unit has been anticipated by Carrier Global's management in previous public statements, and now provides certainty and an expected boost to the company's initial deleveraging plans.
The transaction is valued at an enterprise value of $3 billion, which translates to approximately 15 times the fiscal year 2023 EBITDA, and suggests a low-teens multiple for fiscal year 2024. The valuation is seen as reasonable considering the business segment's profit margin profiles.
The tax implications of the sale are slightly higher than those of previous divestitures in the Security and Industrial Fire sectors, with a tax leakage of around 27%.
However, the overall strategy seems to be on course, with Carrier Global looking to divest assets valued at a total of $10.2 billion by the end of fiscal year 2024. These assets are being sold at a mid-teens trailing EBITDA multiple.
Entering fiscal year 2025, Carrier Global is expected to have a streamlined portfolio, clear financial statements, and significant capital available for shareholder returns such as stock buybacks. The recent development is seen as a positive step that supports the ongoing investment thesis for the company.
In other recent news, Carrier Global Corporation has undergone significant changes. The company has sold its Commercial and Residential Fire business to an affiliate of Lone Star Funds for $3 billion.
This move aligns with Carrier's strategic transformation to focus on its core businesses. In addition, Carrier plans to use the estimated $2.2 billion in net proceeds from the sale for share repurchases, following a considerable reduction of its net debt by over $5 billion.
On the financial front, Carrier has exceeded its second-quarter earnings expectations with an adjusted earnings per share (EPS) of $0.87. Despite a 30% drop in Viessmann's sales, robust North American HVAC demand has helped the company surpass these earnings expectations. Furthermore, Carrier has initiated an $800 million tender offer to purchase its outstanding debt securities, aligning with its focus on managing its debt portfolio effectively.
In terms of analyst perspectives, BofA Securities upgraded Carrier Global's stock from Underperform to Neutral and raised the price target to $72. Despite the underperformance of Viessmann, Baird maintains an Outperform rating on the stock and adjusted its price target for Carrier Global to $74. These adjustments reflect confidence in Carrier's strategic moves, including portfolio reconfiguration and aggressive capital allocation.
InvestingPro Insights
As Carrier Global Corporation (NYSE:CARR) progresses with its strategic transformation, real-time data and insights from InvestingPro offer a valuable perspective on the company's financial health and market position. Carrier Global's commitment to raising its dividend for four consecutive years signals a strong financial discipline and a shareholder-friendly policy. This is complemented by the company's status as a prominent player in the Building Products industry, which underscores its competitive edge.
From a valuation standpoint, Carrier Global is trading at a low P/E ratio of 16.87, which is attractive relative to its near-term earnings growth. This suggests that the stock may be undervalued when considering the company's earnings potential. Moreover, with a market capitalization of $59.29 billion and a solid revenue growth of 8.63% in the last twelve months as of Q2 2024, Carrier Global is demonstrating its ability to expand its financial base.
Investors should note that Carrier Global operates with a moderate level of debt, which provides a balance between leveraging opportunities for growth and maintaining financial stability. For those looking for more insights, there are additional InvestingPro Tips available, offering a deeper dive into Carrier Global's financial metrics and market potential.
Overall, the InvestingPro data and tips enrich the investment narrative for Carrier Global, painting a picture of a company that is not only reshaping its business focus but also maintaining robust financial health and offering potential value to investors. For a more comprehensive analysis, interested parties can access further tips and metrics on InvestingPro.
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