On Thursday, Lake Street Capital Markets adjusted its outlook on Vista Outdoor (NYSE:VSTO) stock, increasing the price target from $29.00 to $33.00, while reaffirming its Buy rating.
The firm's analyst expressed strong confidence in the company's prospects, highlighting a significant gap between the company's fundamental performance and its stock valuation.
The analyst underscored Vista Outdoor's robust business model and its potential to drive EBITDA growth. A key factor contributing to this positive outlook is the performance of the company's top brands, which are responsible for the majority of system-wide sales and EBITDA. The analyst anticipates that as more studios open, Vista Outdoor will achieve greater scale, leading to increased profitability.
The firm anticipates that Vista Outdoor's EBITDA margin will expand to 40% in 2024, enhancing the company's ability to generate free cash flow. With an estimated EBITDA to free cash flow conversion rate of approximately 70%, the company's financial health appears to be on solid ground.
Despite the company's ongoing progress and absence of any signs of weakening, the analyst noted that the stock's valuation has declined from its peak multiple of 18x EBITDA to now below 5x next year's EBITDA.
This has led to a downward revision of the price target to $32, reflecting the current multiple compression. Nevertheless, the firm believes that the long-term investment thesis for Vista Outdoor remains intact, supported by the company's demonstrated ability to pursue its high-growth strategy effectively.
InvestingPro Insights
Amidst the positive outlook from Lake Street Capital Markets, recent data from InvestingPro shows that Vista Outdoor (NYSE:VSTO) has a market capitalization of $2.03 billion, indicating a substantial presence in the industry. The company's adjusted P/E ratio over the last twelve months as of Q3 2024 is 11.08, which suggests a reasonable valuation compared to historical earnings. Moreover, with a strong return of 44.42% over the past year, investors have seen significant growth in their investments.
Two InvestingPro Tips highlight the company's promising financial trajectory. Firstly, analysts expect net income growth this year, which could further solidify investor confidence. Secondly, the company's valuation implies a strong free cash flow yield, aligning with the analyst's expectation of an impressive EBITDA to free cash flow conversion rate. With 9 additional tips available on InvestingPro for Vista Outdoor, investors can gain more in-depth insights into the company's performance and prospects.
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