Why Black Diamond Has Analysts Talking

reported revenue and fully taxed adjusted EPS of $59.4 million and $0.01 (GAAP EPS of $0.00), compared to consensus of $61.6 million and $0.04. Excluding Gregory, adjusted gross margin of 39.0% was up 160bp y/y. Updated 2015 guidance reflects sales growth of ~8% y/y, down from the previous guidance of 10%-13%. The downward revision is based largely on currency. DA Davidson analysts upgraded the rating on the company from Neutral to Buy, while raising the price target from $7.50 to $10. In a report published Tuesday, the analysts noted, "Decision to explore strategic alternatives should unlock brand value in a hurry." "As BDE is currently structured, we believe there is some inherent friction considering: 1) top board members are highly skilled acquirers known for consolidating industries; 2) a legacy equipment business appears to have stalled in recent years as management focused on new categories and acquisitions; and 3) a sharp management focus on a growing new, yet unproven apparel road cycling business is under the microscope of public equity investors. This was unsustainable," the analysts added. DA Davidson expects strong interest in the company's brand portfolio. In the event there is no sale, "a strong strategy has been put in motion to substantially improve profitability." In a separate report, Canaccord Genuity maintained a Buy rating on Black Diamond, while raising the price target from $12 to $17. "We believe there is ample reason to believe a sale is highly probable given the following factors: 1) two highly valued brands in their respective spaces of significant size and/or opportunity; 2) the ability of a strategic buyer to turbocharge BDE's apparel initiative, assuming it has the proper expertise, wholesale relationships, supply chain infrastructure, and capital; 3) outgoing CEO/founder Peter Metcalf; and 4) depressed stock price that dramatically understates the value of the brands," the analysts wrote.