Oppenheimer has maintained its Outperform rating and $48.00 price target for Barnes Group (NYSE:B), in light of ongoing discussions between the industrial and aerospace manufacturer and Apollo Global Management (NYSE:APO) regarding a potential acquisition.
The talks suggest a purchase price above $45 per share, but Oppenheimer deems a $55 per share offer as "reasonable."
The firm's stance is based on projected earnings before interest, taxes, depreciation, and amortization (EBITDA) for Barnes Group's aerospace and industrial segments. The 2025 estimated aerospace EBITDA is $242 million, an increase from the $221 million expected in 2024. Similarly, the industrial segment's EBITDA for 2025 is projected at $111 million, up from $103 million in 2024.
The current offer of over $45 per share is considered to be on the lower end, particularly for the aerospace division. The valuation at this level would imply roughly 10 to 10.5 times the aerospace segment's projected 2025 EBITDA and 8 to 9 times that of the industrial segment. Oppenheimer believes that the aerospace sector, which has consistently matched industry growth and currently operates with a 24-25% EBITDA margin, warrants a higher valuation.
By Oppenheimer's calculations, a $55 per share acquisition price would represent a 12 to 12.5 times multiple on the aerospace segment's future EBITDA, which is considered quite reasonable by the firm. This assessment takes into account the current financial trajectory of Barnes Group's aerospace and industrial businesses.
In other recent news, Barnes Group Inc . has seen some significant changes and developments. The company reported a 13% increase in revenue, reaching $382 million, and a 14% rise in adjusted EBITDA to $76 million in the second quarter of 2024. Despite these increases, the company's earnings per share experienced a decrease compared to the previous year.
Barnes Group also announced the appointment of Troy W. Ingianni as the new Principal Accounting Officer, succeeding Marian Acker who is transitioning to a Senior Advisor role. Ingianni's compensation includes a base salary of $270,000, a target annual incentive award, and a one-time equity grant of restricted stock units.
In the company's segments, the aerospace division saw a significant surge with sales increasing by 79% and aftermarket sales growing by 19%. Conversely, the industrial segment experienced a 24% drop in sales due to divestitures. The company has adjusted its full-year sales growth guidance to 10-12%, with organic sales growth expected at 4-6%.
InvestingPro Insights
Barnes Group's financial metrics and market position offer additional context to the potential acquisition discussions. According to InvestingPro data, the company's market capitalization stands at $2.24 billion, with a price-to-book ratio of 1.75 as of the last twelve months ending Q2 2024. This valuation aligns with Oppenheimer's analysis of the company's worth.
InvestingPro Tips highlight that Barnes Group has maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to shareholder returns. This long-standing dividend history could be an attractive factor for potential acquirers like Apollo Global Management.
Moreover, the company's revenue growth of 22.02% over the last twelve months ending Q2 2024 supports Oppenheimer's positive outlook on Barnes Group's aerospace and industrial segments. The EBITDA growth of 58.11% during the same period further underscores the company's improving operational efficiency, which could justify a higher acquisition price as suggested by Oppenheimer.
It's worth noting that while the company was not profitable over the last twelve months, analysts predict it will be profitable this year, according to another InvestingPro Tip. This expectation of profitability turnaround could be a key factor in the ongoing acquisition talks and valuation discussions.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Barnes Group, providing deeper insights into the company's financial health and market position.
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