VSTO - Embedded Expectations Analysis - 2021 08 18
Vista Outdoor Inc. (VSTO:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) earnings, with a 7.8x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about leverage, D2C business expansion, and their M&A strategy suggest the potential for near-term headwinds, market expectations are too bearish, suggesting long-term equity upside is warranted.Specifically, management may lack confidence in their ability to maintain their leverage ratio, the pace of their D2C expansion, and Federal Ammunition business margins. In addition, they may have concerns about their pricing power and the sustainability of positive trends in the outdoor market. Furthermore, management may be exaggerating the potential of active sync technology and the progress of their M&A efforts.
Although management's concerns about leverage, D2C business expansion, and M&A opportunities suggest the potential for near-term headwinds, market expectations appear too bearish given the firm's strong demand opportunities. As such, long-term equity upside is warranted.
Vista Outdoor is a designer, manufacturer and marketer of consumer products in the outdoor sports and recreation markets. The company's Outdoor Products product lines are action sports, archery/hunting accessories, outdoor cooking, golf, hydration products, optics, shooting accessories and tactical products. The Shooting Sports segment designs, develops, produces, and sources ammunition and firearms for the hunting and sport shooting markets, as well as ammunition for local law enforcement, the U.S. government and international markets. The Shooting Sports product lines include centerfire ammunition, rimfire ammunition, shotshell ammunition, reloading components, and firearms.
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