A day after Rockwell Collins, Inc. COL disclosed its agreement to buy B/E Aerospace Inc BEAV for $6.4 billion, Baird downgraded B/E Aerospace's stock from an Outperform to Neutral. The firm believes there is limited opportunity for any upside potential following the acquisition news.
While stating other suitors are unlikely to emerge, analysts Peter Arment and Asher Carey noted that B/E Aerospace shares are within 5 percent of the $62.00/share price following a 16.4 percent jump in the stock price on Monday. The analysts advised investors to gain from the stock and move to the sidelines.
The brokerage viewed in a research note, "The BEAV stock is up 39 percent year-to-date and is currently trading at 17.9x P/E multiple on 2016 estimates and has a 2016 EV/EBITDA multiple of 12.4x. While staying in the deal gives you a portion of the new combined company, the synergy road map and overall deal strategy has raised more questions than are current answers at this point, which also increases the risk profile of staying in BEAV stock."
As far as the risks in closing the deal, Baird pointed out that 55 percent of the transaction value is dependent on debt issuance. This apart, the risks could come from regulatory approvals in Asia and the end-market weakness thus hurting the economics of the transaction.
At last check, B/E Aerospace was up 1.39 percent at $59.71, while Rockwell Collins was up 1.3 percent at $80.26.
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