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On Monday, B.Riley reaffirmed a Buy rating and a $30.00 price target for Compass Diversified (NYSE:CODI). The firm's confidence in the company has been bolstered by the announcement that Compass Diversified's subsidiary, Altor Solutions, is set to acquire Lifoam Industries. The cash transaction, valued at $137 million, is anticipated to be finalized in September.
Lifoam Industries is recognized as a premier provider of temperature-controlled packaging products serving healthcare, commercial, and retail sectors. While specifics on the deal are sparse, the acquisition is viewed positively as it is expected to diversify Altor Solutions' revenue streams and provide Compass Diversified with increased exposure to the healthcare industry.
Compass Diversified is expected to fund the acquisition through its available resources, which include $68 million in cash as of the second quarter and $544 million from an untapped revolving credit facility. The credit facility carries an interest rate of SOFR+150-250 basis points.
Prior to the acquisition announcement, projections for Altor's performance through the end of the year were modest. However, the integration of Lifoam is projected to improve earnings quality and potentially lead to an uplift in estimates extending into 2025.
B.Riley's reiterated Buy rating and price target reflect this optimistic outlook for Compass Diversified's financial future.
In other recent news, Altor Solutions, a subsidiary of Compass Diversified, has announced the acquisition of Lifoam Industries for $137 million. This acquisition will bolster Altor's presence in the cold-chain packaging sector, diversifying its customer base, and expanding its manufacturing capabilities across seven new locations in the U.S. Altor's CEO, Terry Moody, stated that this acquisition is a key step in the company's strategy to enhance its cold-chain packaging solutions.
Compass Diversified has also reported an 11% increase in Q2 2024 revenue, largely driven by its branded consumer vertical, particularly BOA, PrimaLoft, and Lugano. Despite a net loss of $13.7 million, the company's adjusted EBITDA rose by 27%, indicating a positive financial outlook. However, its industrial vertical experienced a decline.
The company is actively exploring merger and acquisition opportunities, particularly in the healthcare, consumer, and industrial tech sectors. Analysts have noted an increase in full-year subsidiary adjusted EBITDA projections, now expected to be between $480 million and $520 million.
Despite a temporary slowdown in the HoneyPot subsidiary, Compass Diversified remains confident in its overall business positioning for a strong 2025.
InvestingPro Insights
As Compass Diversified (NYSE:CODI) gears up for the strategic acquisition of Lifoam Industries, it's worth noting that the company's financial health and market performance are key considerations for investors. According to real-time data from InvestingPro, Compass Diversified has a market capitalization of $1.64 billion, reflecting its standing in the market. The company's revenue has grown by 10.29% over the last twelve months as of Q2 2024, indicating a positive trajectory in its financial performance. This is further supported by a robust gross profit margin of 45.31% in the same period, showcasing the company's ability to maintain profitability in its operations.
InvestingPro Tips highlight that Compass Diversified is expected to see net income growth this year, with three analysts having revised their earnings upwards for the upcoming period. This aligns with the optimistic view expressed by B.Riley, suggesting that the acquisition could indeed be a catalyst for future growth. Additionally, the company has a commendable track record of maintaining dividend payments for 19 consecutive years, offering an attractive dividend yield of 4.72% as of the latest data, which may appeal to income-focused investors.
For those considering a deeper dive into Compass Diversified's prospects, there are over six additional InvestingPro Tips available, providing more nuanced insights into the company's performance and potential. As Compass Diversified takes steps to enhance its portfolio and financial standing, these data points and expert analyses can offer valuable guidance to investors.
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