On Thursday, Roth/MKM has adjusted its stance on Vista Outdoor (NYSE:VSTO), downgrading the stock from Buy to Neutral and setting a price target of $42.00. The adjustment follows a period of performance where the stock price approached $40, marking an approximate 18% increase since the second quarter, compared to the Russell 2000's 7% rise over the same period.
The firm's previous Buy rating was based on potential gains from either the completion of the CSG transaction or a takeover bid from MNC. The latter's bid reached $43 per share on September 6, 2024, which was a factor in the firm's prior upgrade.
However, with the share price now nearing the new price target and the prospects of another cash bid seeming unlikely, immediate catalysts for further stock appreciation are not evident.
Despite the downgrade, Roth/MKM recognizes potential long-term value in Vista Outdoor's Revelyst shares. The analysis suggests that with normalized adjusted EBITDA margins of around 13% on a higher revenue base of $1.5 billion, Revelyst could generate approximately $195 million in standalone adjusted EBITDA. Using an 8x multiple, this could imply a value of over $26 per share for Revelyst, in contrast to its current market-implied valuation of roughly $12 per share.
Additionally, there could be potential for Vista Outdoor's current valuation to increase if the company's board is successful in finding a strong strategic or financial bidder for the Revelyst business. This scenario presents a possible near-term upside for the stock, even as the firm moves to a Neutral position.
In other recent news, Vista Outdoor Inc . has agreed to a transaction with Czechoslovak Group a.s. (CSG) that includes the acquisition of The Kinetic Group and an investment in Revelyst. Valuing The Kinetic Group at approximately $2.15 billion, this deal offers Vista Outdoor stockholders $28 in cash per share and one share of Revelyst common stock for each share of Vista Outdoor stock they hold.
Simultaneously, discussions are ongoing with MNC Capital regarding a potential separate acquisition of Revelyst. Despite these talks, Vista Outdoor's Board has rejected MNC's proposal to acquire the company for $43 in cash per share, favoring the CSG transaction instead.
In addition to these strategic maneuvers, Vista Outdoor has reported a 7.1% decrease in total sales to $644.2 million and a 6.5% decline in earnings per share to $1.01. However, Revelyst is expected to double its Adjusted EBITDA sequentially for the quarter and the year.
Finally, Vista Outdoor's board of directors has been re-elected, and the compensation of the company's executive officers for fiscal year 2024 has been approved. The company has also approved transaction incentive awards for two of its top executives, Jason Vanderbrink and Eric Nyman. These are the recent developments in the ongoing strategic shifts at Vista Outdoor Inc.
InvestingPro Insights
In the context of Roth/MKM's recent rating adjustment for Vista Outdoor (NYSE:VSTO), incorporating real-time data and insights from InvestingPro could provide investors with a more comprehensive understanding of the company's financial health and stock performance. Vista Outdoor's market capitalization stands at $2.31 billion, reflecting its position within the industry. Despite a challenging period, with a reported revenue decline of 9.21% over the last twelve months as of Q1 2023, the company has managed to maintain a gross profit margin of 31.27%, demonstrating its ability to retain a significant portion of sales as gross profit.
InvestingPro Tips highlight that while Vista Outdoor has not been profitable over the last twelve months, analysts predict a return to profitability this year. This aligns with the firm's positive outlook on the potential value of Vista Outdoor's Revelyst shares. Additionally, with a strong return over the last five years and the company's liquid assets exceeding short-term obligations, there is an indication of financial stability that could appeal to long-term investors. For those monitoring Vista Outdoor's stock closely, it's worth noting that the company is trading near its 52-week high and has experienced a significant price uptick over the last six months. For more detailed analysis and additional InvestingPro Tips, investors can visit the dedicated page for Vista Outdoor at https://www.investing.com/pro/VSTO, where 10 additional tips are available.
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