B.Riley downgrades Vista Outdoor stock amid acquisition uncertainties

On Wednesday, B.Riley shifted its stance on Vista Outdoor (NYSE:VSTO), downgrading the stock from Buy to Neutral and setting a price target of $43.00.

The downgrade comes in response to the stock's recent performance, which has been influenced by the potential of a $42 per share acquisition and the company's exploration of strategic alternatives. These developments could potentially offer a higher value to shareholders than previously anticipated.

The investment firm's previous Buy rating was based on the undervalued status of Revelyst, Vista Outdoor's segment, with the expectation of value growth even if the company's long-term targets were not fully met.

B.Riley had projected an approximate 10% adjusted EBITDA margin for fiscal year 2027, compared to the company's own mid-teens percentage long-term target.

However, the stock has surged based on event-driven news, leading the firm to reassess the impact of its investment thesis on the stock's near-term performance.

B.Riley suggests there could be a significant risk to Vista Outdoor's share price if an adequate offer for Revelyst or the entire company does not come forward.

The analyst notes that with the stock price nearing its COVID-19 peak levels, which is an anomaly compared to other companies in the outdoor industry, the current situation presents a high level of uncertainty.

In light of these developments, B.Riley has decided to downgrade Vista Outdoor to a Neutral rating. The firm indicates that it will remain attentive to a more favorable opportunity to reassess its position on the stock.

The decision reflects a cautious approach due to the potential downside and the uncertainty regarding the outcomes from the strategic review process.

InvestingPro Insights

As Vista Outdoor (NYSE:VSTO) navigates through strategic alternatives and potential acquisition offers, investors are keen on understanding the financial health and market position of the company. According to InvestingPro data, Vista Outdoor has a market capitalization of $2.24 billion and shows a significant price uptick with a 29.91% return over the last six months. Despite a negative revenue growth of -9.21% over the last twelve months as of Q1 2023, the company's gross profit margin remains strong at 31.27%, indicating a solid ability to control costs relative to sales.

InvestingPro Tips highlight that Vista Outdoor has a high shareholder yield and that analysts expect net income to grow this year. This is particularly relevant as the company does not pay a dividend to shareholders, making capital gains a primary return vehicle for investors. Moreover, with liquid assets exceeding short-term obligations, the company is in a good position to meet its immediate financial liabilities. For investors seeking more detailed analysis, there are additional tips available on InvestingPro, including insights on earnings revisions and profitability predictions for the year.

As the market digests the recent downgrade by B.Riley, these InvestingPro metrics and tips provide a broader context for Vista Outdoor's financial standing and future prospects. Investors can access a comprehensive list of tips on InvestingPro to further inform their investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.