UPDATE: D.A. Davidson Initiates Coverage On KLX

D.A. Davidson initiated coverage on KLX Inc KLXI Thursday with a Neutral rating and $44 price target.

Analysts JB Groh and Alex Heinen felt the company is fairly valued while its price target was “based on KLXI shares trading at ~9.0x our estimated Aerospace Solutions Group (ASG) FY16 EBITDA, plus ~3.5x our estimated Energy Services Group (ESG) FY16 EBITDA.

“We believe ASG deserves an industry multiple, while we have awarded ESG a multiple slightly below peers. ASG generated ~76 percent of the company’s last 12 months pro-forma revenue, while ESG accounted for the remaining ~24 percent.”

Groh added that “KLX’s ASG division is the world’s leading distributor and value-added service provider of aerospace fasteners and consumables. Its product suite ranges from fasteners and bearings to electrical and chemical offerings. With ~80 percent of its revenues coming from the commercial aerospace market, the segment is highly correlated with the global airline industry.”

“ESG provides a broad range of technical solutions and equipment to the oil field services industry across North America. With a significant presence in most major oil producing formations across the United States, its services account for ~78 percent of U.S. onshore oil production and ~84 percent of U.S. onshore natural gas production,” according to the analyst note.

The firm established “a 2014 adjusted EPS estimate of $2.36 on revenue of $1.71 billion. We have assumed revenue growth of ~32 percent, primarily due to the recent acquisitions in ESG. For 2015 we have assumed revenue growth of ~10 percent, for total revenue of $1.88 billion. Our EPS estimate for 2015 is $3.40. Our FY16 EPS of $3.75 is based on revenue of $1.97 billion.”

KLX recently traded at $42.45.