CL King Rated Vista Outdoor as a ‘Buy’

Price movements

Vista Outdoor (VSTO) has a market cap of $2.4 billion. It rose 2.2% to close at $39.03 per share on September 19, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.2%, -1.3%, and -12.3%, respectively, on the same day.

VSTO is trading 0.66% below its 20-day moving average, 12.9% below its 50-day moving average, and 16.8% below its 200-day moving average.

CL King Rated Vista Outdoor as a ‘Buy’

Related ETFs and peers

The First Trust Consumer Discretionary AlphaDex ETF (FXD) invests 0.86% of its holdings in Vista Outdoor. The ETF tracks an index of large- and mid-cap US Consumer Discretionary stocks. The underlying index uses multifactor selection and tiered equal weighting. The YTD price movement of FXD was 2.8% on September 19.

The iShares Morningstar Small Core ETF (JKJ) invests 0.57% of its holdings in Vista Outdoor. The ETF tracks a market cap–weighted index of US small-cap core stocks. The index selects stocks from 90%–97% of market capitalization that fall into Morningstar’s core style categorization.

The market caps of Vista Outdoor’s competitors are as follows:

  • Sturm, Ruger & Co. (RGR) — $1.1 billion
  • Smith & Wesson Holding (SWHC) — $1.6 billion
  • Orbital ATK (OA) — $4.4 billion

Vista Outdoor’s rating

CL King has initiated its coverage of Vista Outdoor with a “buy” rating.

Performance of Vista Outdoor in fiscal 1Q17

Vista Outdoor reported fiscal 1Q17 net sales of $630.3 million, a rise of 22.5% over its net sales of $514.5 million in fiscal 1Q16. The company’s gross profit margin and EBIT (earnings before interest and tax) rose 0.44% and 0.17%, respectively, between fiscal 1Q16 and fiscal 1Q17.

Its net income and EPS (earnings per share) fell to $29.1 million and $0.48, respectively, in fiscal 1Q17, compared to $33.9 million and $0.53, respectively, in fiscal 1Q16. VSTO’s cash and cash equivalents fell 56.5%, and its net inventories rose 25.8% between fiscal 4Q16 and fiscal 1Q17.

Its current ratio fell to 2.3x, and its debt-to-equity ratio rose to 1.1x in fiscal 1Q17, compared to 2.8x and 0.77x, respectively, in fiscal 4Q16.

Projections

The company has made the following projections for fiscal 2017:

  • sales of $2.7 billion–$2.8 billion
  • interest expenses of ~$45 million
  • tax rate of ~37%
  • adjusted EPS of $2.65–$2.85
  • capital expenditure of ~$90 million
  • free cash flow of $130 million–$160 million

This guidance doesn’t include the impact of future strategic acquisitions, divestitures, investments, business combinations or other transactions, contingent consideration revaluations, transition expenses, or inventory step-ups for completed acquisitions.

In the next part of this series, we’ll take a look at Mattel (MAT).