Investment firm B. Riley has downgraded its “buy” rating on Malibu Boats stock to “neutral” following the company’s acquisition of Cobalt Boats and the equity follow-on offering completed earlier this month.
Wells Fargo retained its buy rating for the company, saying Malibu would benefit from a redesign of the top-selling 23 LSV.
“With the shares up 130-plus percent over the past year, valuation played a big role in our decision to downgrade the shares today,” senior B. Riley analyst Eric Wold told Trade Only in an email on Thursday. “But some industry trends around boat sales and lightweight vehicle sales, as well as Malibu’s exposure to sterndrive with the Cobalt acquisition, kept us from applying a higher multiple to the shares to justify keeping a buy rating.”
“We are more comfortable applying a multiple of 7.50 times to our updated calendar year 2018 EBITDA estimate (or roughly a 15 percent multiple discount to the shares’ 3-year peak),” driving a new price target of $25.50, Wold said in a report.
“We would look for more visibility into strengthening boat industry trends and/or a more attractive entry point to get re-engaged with the shares,” Wold said.
Although the acquisition of Cobalt was initially funded with cash on hand and a new credit facility, Malibu soon after completed a follow-on offering of 2.3 million shares at $25.25 on Aug. 9. That represented a 13 percent increase in total shares outstanding, Wold said.
Malibu closed in early July on its $130 million acquisition of Cobalt.
“We view the transformative Cobalt Boats acquisition as complementary to Malibu’s current core operations, with potential upside derived from cost synergies, dealer optimization, new segment entry and vertical integration,” Wells Fargo senior analyst Timothy Conder said in a report.
“Cobalt’s double-digit percentage EBITDA margin [is] slightly dilutive, but should continue to improve,” he said. “Above the immediate accretion, we believe the $7.5 million of cost synergies by the end of fiscal year 2021 could prove conservative.”