Morgan Stanley: 'Too Much Uncertainty' At Vista Outdoor

In a report published Friday, Morgan Stanley analyst Jay Sole maintained an Equal-Weight rating on Vista Outdoor Inc VSTO, with a price target of $44.

Although there are "lots of positives" about the company, there is currently "too much uncertainty," Sole said. Vista sales have high exposure to "unpredictable political events," such as the 2016 US election. In case political events boost sales, the company could generate 20 percent EPS CAGR. However, if politically-driven sales growth rates return to 1990s levels, the EPS CAGR could be as low as 0 percent.

In the report Morgan Stanley noted three key debates:

• Will industry ammo sales return to strong growth rates? - "Our base case is industry sales rise 5% per year, but we see an equal probability the growth rate jumps to 15% or declines 5% in any period," Sole mentioned.
• Where is Vista's gross margin going? - "We expect improvement, but see more downside than upside pressure, especially in the gun & ammo business," the report added.
• What are Vista's M&A prospects? - M&A is part of Vista's stated strategy. While this seems like a good strategy, it may take years for the company to significantly boost its EPS profile via this approach. "Buybacks may be the better risk adjusted use of capital," Sole stated.