Piper Jaffray Downgrades Solera On M&A, 'Disappointing' Guidance

In a report published Monday, Piper Jaffray analyst Peter P. Appert downgraded the rating on

from Overweight to Neutral, while lowering the price target from $68 to $43. The analyst believes that it is unlikely for the stock to outperform over the next 12 months, given the disappointing near-term operating guidance, meaningful dilution from acquisitions and Solera's highly leveraged balance sheet. "Given the stock's YTD underperformance, much of the bad news may already be priced in. However, given the likelihood of another year of no EPS growth, we see no rush to be involved," analyst Appert stated. Solera has guided to F16 revenue growth ahead of the estimate, driven by acceleration in trends in the second half of the year. The guidance is, however, offset by dilution from acquisitions, which is expected to bring the EPS down about 4 percent from the F15 level. According to the Piper Jaffray report, "Given inconsistent F15 YTD revenue performance, investors are likely to discount the forecasted growth acceleration (especially in 2H16) and focus on lack of margin leverage and financing dilution burdening earnings the next 4 quarters." The F16 and F17 cash EPS estimates have been lowered from $3.43 and $3.91 to $2.95 and $3.27, respectively, to reflect dilution due to acquisitions, along with lower core margins. The organic revenue growth estimates for F16 and F17 have also been lowered, given the company's inability to post consistent revenue performance.