Buckingham Starts KLX Inc At Buy, Calls Industry Fears 'Overdone'

Loading...
Loading...

In a report published Friday, Buckingham Research analyst Richard Safran initiated coverage of KLX Inc KLXI with a Buy rating and a price target of $51.

KLX spun off from B/E Aerospace Inc BEAV (rated Neutral, PT of $56) in 2014. Analyst Richard Safran believes there is “significant upside potential” in view of the “overdone oil/gas fears.”

In the report Buckingham Research noted that the bullish view on KLX was driven by:

  • A belief that nonrecurring spin-off/acquisition-related headwinds were “weighing on base business earnings/FCF expectations”
  • The company exhibits a solid cash flow base, anchored in commercial aerospace growth
  • There is high M&A appetite in oil/gas amidst “an opportunistic secular backdrop”
  • Current ASG segment market multiples implies a negative $12-$13 per share value for the ESG segment, which appears to be based on “overblown oil/gas fears”

Although there is unlikely to be significant M&A in 2015, Safran believes that strong ASG cash flows and below target net leverage could drive M&A next year. Aggregate aftermarket sales growth is estimated at 10-15 percent y/y in 2015, up from about 9 percent in 2014. While this year could be rough for KLX, this already appears to be reflected in the Street estimates.

Safran estimated upside/downside returns at 65 percent / -27 percent based on his best/worst case price targets of $72/$32.

Loading...
Loading...
Posted In: Analyst ColorInitiationAnalyst RatingsBuckingham Research
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...