Baird Sees Long Period Of Value Creation For SiteOne Landscape Supply

SiteOne Landscape Supply Inc SITE reported robust 1Q16 results, while issuing its initial adjusted EBITA guidance doe 2016 in line with expectations.

Baird’s David J. Manthey maintains an Outperform rating on the company, with a price target of $38.

Robust Results

“SITE reported favorable first-quarter results above the midpoint of preliminary ranges, demonstrating progress on the company’s operational initiatives, while unusually favorable weather and strong underlying market growth were also benefits,” Manthey mentioned.

Related Link: SiteOne Landscape Should Benefit From A Housing Recovery

Pointing to a favorable underlying growth trajectory, the analyst stated that overall organic growth was expected at 8–9 percent for 1H16, which alleviates the recent weather-related concerns.

“More broadly, management sees market growth in the mid-single-digits – underpinned by the company’s maintenance business, which provides a solid recurring revenue base,” Manthey noted.

Value Creation

SiteOne Landscape Supply has been looking at potential acquisition candidates, and the analyst expects a few acquisitions during 2H16.

“We see ample capacity to consummate deals overall, despite leverage that’s currently on the high side, given anticipated adjusted EBITDA growth and free cash flow conversion that is expected to exceed 100 percent of net income,” according to the Baird report.

The analyst continues to believes this could be the start of a long period of value creation for the company, while expecting outperformance, driven by significant earnings growth and valuation upside.