Wunderlich Says Second Arctic Cat Offer Unlikely

“Given the significant and consistent operating losses Arctic Cat Inc (NASDAQ: ACAT) has displayed the past several years, worsening further still as we see in 3Q results, we view it unlikely that another strategic or financial buyer would be willing to pay a meaningful premium to the $18.50/share buyout offer already on the table,” Wunderlich’s Rommel Dionisio said in a note.

The analyst maintains a Hold rating on the company, with a price target of $18.50.

Higher Offer Unlikely

Following the recent announcement of having entered into a definitive agreement to be acquired by Textron Inc. (NYSE: TXT) for $18.50 per share, Arctic Cat reported its Q3 results well below the guidance and consensus expectations.

Dionisio mentioned that the results reflected competitive challenges and tough retail environments for both snowmobiles and ATV/ROVs, as well as for parts and accessories.

“Given Arctic Cat’s current lack of earnings visibility and considerable operating losses, we would view higher buyout offers as somewhat unlikely,” the analyst stated.

Disappointing Fundamentals

The company reported its Q3 revenue at $117 million, with EPS of $(2.85), meaningfully missing the consensus forecasts.

Dionisio pointed out that Arctic Cat’s fundamental performance has continued to deteriorate sharply, against the backdrop of tough retail environments, high dealer inventories, competitive promotional pressure and weak reception of new products.

The revenue and EPS estimates for fiscal year 2017 and 2018 have been reduced to reflect “ongoing weakness in both the snowmobile and ATV/ROV markets, combined with Arctic Cat’s declining market share, high dealer inventory levels, and disappointing recent new product introductions,” the analyst added.

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