DA Davidson Downgrades CommerceHub Following Buyout

CommerceHub Inc CHUBA, a distributed e-commerce network for retailers and brands, announced Tuesday morning open an agreement to be bought by private-equity firms GTCR and Sycamore Partners for $1.1 billion in cash.

Reacting to the announcement, the stock settled Tuesday's session up about 23 percent at $22.50.

The Analyst

DA Davidson analyst Tom Forte downgraded CommerceHub from Buy to Neutral.

The Thesis

The CommerceHub buyout is a reflection of the significant cash flow the company generates on revenues, Forte said in a note. The deal is due to close in the third quarter of 2018.

"We also see durability in its cash flows as there is a large and growing need for its services among traditional retailers – to increase their assortments by leveraging CommerceHub's large network of drop shipment vendors to more effectively compete against Amazon.com, Inc. AMZN," the analyst said.

Considering DA Davidson's $23 price target, the per-share take-out price of $22.75 seems appropriate, prompting the downgrade, the analyst said.

If the acquisition doesn't go through, DA Davidson sees three potential catalysts over the next 12 months.

• New client wins, internationally and for grocery;
• Monetization from new client wins; and
• Better-than-expected sales due to the secular shift of e-commerce and the implementation of drop shipments strategies to increase virtual inventories.

The Price Action

CommerceHub shares were up about 10 percent over the past year.

Related Links:

Physical Retail Isn't Dying: Here's How To Play It

Report: Amazon Researching A Banking Product