Outdoor products and lifestyle manufacturer Vista Outdoor Inc. (NYSE: VSTO) may not be a familiar name, but you'll likely recognize its brand portfolio.
The company designs and manufactures outdoor sports and recreational products in two categories: Sporting products and outdoor products.
This consumer discretionary sector company operates many brands, including Remington Ammunition to Bell Helmets, CamelBak, Bushnell Golf and Fox Racing. It has 41 labels under its umbrella.
Vista Outdoor shares are trading at just 7.9x forward earnings, which has caused suitors like Colt CZ Group SE (OTC: CZGZF) to offer $30 per share to acquire the company, which Visto rejected.
The company will sell its sporting products business to Czechoslovak Group (CSG) for $1.91 billion in an all-cash transaction pending regulatory and shareholder approval. The sale will leave the outdoor products business as a standalone entity renamed Revelyst Inc. to trade on the New York Stock Exchange (NYSE) under GEAR. Get AI-powered insights on MarketBeat.
In Colt's crosshairs
On November 24, firearms manufacturer Colt CZ Group made an unsolicited merger offer for Visto Outdoor for $30 per share in a cash and stock transaction. Colt accumulated a 5.7% stake in Vista.
The deal was an alternative to its October 15 agreement to sell its sporting products business to CSG Group. Colt planned to raise an additional $900 million comprised of $600 million in additional stock and $300 million in debt.
Upon closing the deal, Visto Outdoor shareholders would receive 55% ownership in the combined entity and an undisclosed amount of cash with an estimated market cap of $2.3 billion. Upon closing the transaction, the company would have $900 million to buy back stock. The combined company would generate most of its sales from firearms and ammunition.
Colt CEO Jan Drahota assured shareholders in a letter, "We would keep the company together, allowing continued upside for current Vista shareholders with the New Vista retaining its listing in the U.S."
On November 20, Vista rejected the merger offer, stating that the $30 per share offer "significantly undervalues" the company.
B. Riley Securities opposes Colt's merger plan
On November 24, B. Riley Securities chimed in on the Colt proposed merger offer, stating that the proposed combination overlooks the potential for "meaningful margin improvement" but neglects the regulatory risk and likelihood that the valuation multiple of the combined company will remain constrained. The deal with Colt is inferior to the plan to sell the Sporting Products segment to CSG and keep the Outdoor Products as a standalone listed company.
Antitrust clearance
On December 12, Vista received antitrust clearance on the proposed merger, which should close in 2024. The waiting clearance period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired.
It still needs approval from the Committee on Foreign Investment in the United States (CFIUS) and the stockholders. Under the terms of the deal, Vista would separate its sporting products business from its outdoor products business, and CSG would merge one of its subsidiaries with Vista Outdoor. Vista shareholders would receive shares of the outdoor products and approximately $750 million in cash in aggregate.
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Bottom-line miss
Vista Outdoor reported fiscal Q2 2024 EPS of 96 cents, missing analyst estimates by three cents. Revenues dropped 13.5% year-over-year (YoY) to $676.8 million, beating consensus analyst estimates of $675.68 million.
Sporting products revenues were $349.5 million, and outdoor products sales were $327.3 million. Q2 2024 adjusted net income was $44.4 million, and adjusted EBITDA was $116.1 million, with 6.6% and 17.2% margins, respectively.
Vista Outdoor Interim CEO Gary McArthur commented, "Our recent definitive agreement to sell Sporting Products to Czechoslovak Group (CSG) for an enterprise value of $1.91 billion creates meaningful value by returning at least $750 million to stockholders and locking in certainty of value for Sporting Products, while setting up both Sporting Products and Revelyst, and the brands in their portfolios, for long-term success."
Vista CEO Christopher Metz was asked to resign on February 1 due to a "loss of confidence in his leadership" and was recently appointed CEO of Solo Brands Inc. (NYSE: DTC).
In-line guidance
The company issued in-line guidance for the fiscal full-year 2024 EPS of $3.65 to $4.05 versus $3.81 analyst estimates. Fiscal full-year 2024 revenues should be between $2.725 billion and $2.825 billion versus $2.76 billion analyst estimates. Adjusted EBITDA margins should land in the range of 15.50% to 16.25%.
B. Riley Securities upgrade
On December 15, B. Riley Securities upgraded shares of Vista Outdoor to a Buy and raised its price target to $32 per share. The firm holds a wait-and-see approach with an upside hinging on better visibility in the CSG transaction timing.
Vista Outdoor analyst ratings and price targets are at MarketBeat.
You can find Vista Outdoor peers and competitor stocks on the MarketBeat stock screener.
Daily symmetrical triangle pattern
The daily candlestick chart for VSTO has a symmetrical triangle pattern, getting very close to the apex point. The descending upper trendline formed at $33.78 after peaking on September 28, as shares fell to a low of $23.33 on October 25, to form the lower ascending trendline.
The daily market structure low (MSL) trigger formed at $28.35. VSTO has been making lower highs on bounces and higher lows on pullbacks as shares approach the apex point for a breakout through the descending upper trendline or a breakdown below the ascending lower trendline. The daily relative strength index (RSI) is rising towards the 60-band. Pullback support levels are at $27.67, $26.05, $24.21 and $23.03.
