On Thursday, Raymond James adjusted the price target for i3 Verticals (NASDAQ:IIIV) shares to $31.00, up from the previous target of $30.00, while reaffirming a Strong Buy rating. The revision follows the company's recent sale of its Merchant Services segment and two non-core Software assets for a total of $440 million.
The firm believes that the transaction suggests a valuation of over 9 times the fiscal year 2025 estimated EBITDA for the Merchant Services business, which is higher than the sub-9 times EBITDA at which the consolidated business is trading. The sale price is approximately 10 times the fiscal year 2024 estimated EBITDA when factoring in around $4 million in corporate costs.
Post-sale, the remaining company, referred to as Remain-co, is trading at about 9.5 times the fiscal year 2025 estimated EBITDA, after accounting for taxes and deal costs. Raymond James highlights Remain-co as a high-quality, defensive software asset with a very strong balance sheet.
The analyst projects that management will have approximately $250-300 million in additional balance sheet capacity to continue its notable track record in mergers and acquisitions.
The firm's analysis suggests that the current valuation of Remain-co at under 10 times EBITDA is too low. They expect the shares to re-rate closer to approximately 12 times EBITDA in the near term, which would be around $25 per share. Over the next year, the stock is anticipated to reach approximately 15 times EBITDA, equivalent to $31 per share.
In conclusion, Raymond James views i3 Verticals as one of their top stock picks and advises investors to consider increasing their holdings or starting new positions in the company.
In other recent news, i3 Verticals has been in the spotlight due to its Q2 earnings and revenue results, and the sale of its Merchant Services segment. The company's fiscal second quarter 2024 results slightly missed expectations, leading to a downward revision of its full-year 2024 guidance for the second consecutive quarter.
Notably, i3 Verticals recently sold its Merchant Services segment to Payroc for $440 million, a move expected to significantly reduce its debt estimated at $369 million.
Analysts from Stephens and BMO Capital Markets have adjusted their price targets for i3 Verticals following these developments. Stephens raised the company's share target to $29, citing the successful sale and the company's potential for high single-digit revenue growth. Conversely, BMO Capital Markets reduced the price target from $25.00 to $24.00 due to the earnings miss.
In other developments, i3 Verticals reported a minor increase in Q2 revenues, reaching $94.5 million. The revised FY24 outlook estimates revenues between $380 million and $394 million, and adjusted EBITDA between $107 million and $113 million. These recent developments highlight i3 Verticals' strategic focus on expanding software solutions in key vertical markets such as the public sector, healthcare, and education.
InvestingPro Insights
As i3 Verticals (NASDAQ:IIIV) navigates through its recent strategic divestitures, investors are keen on understanding the company's financial health and future growth prospects. According to InvestingPro data, i3 Verticals boasts a market capitalization of $659.4 million, with a high P/E ratio of 193.73, which adjusts to 54.44 when looking at the last twelve months as of Q2 2024. This is complemented by a robust gross profit margin of 77.93% over the same period, indicating strong profitability in its operations.
InvestingPro Tips indicate that analysts are expecting net income growth this year for i3 Verticals, despite several analysts revising their earnings downwards for the upcoming period. This dichotomy suggests that while there is optimism about the company's profitability, there may be concerns about the pace of growth or external market conditions affecting earnings. Moreover, the company's stock price has experienced significant volatility, which could be a point of consideration for investors looking for stability.
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