BofA: Buy Compass, It's 'Pointed North'

• Despite declining 2 percent over the past week, Compass Diversified Holdings CODI shares opened at $16.01 on August 25, close to the high end of their 52 week range of $9.70 to $18.60.
• BofA Merrill Lynch analyst Derek Hewett initiated coverage of the stock with a Buy rating and a price objective of $18.
• Compass Diversified’s good track record and excess liquidity should allow the company to continue performing well, Hewett said. The stock offers an excellent opportunity to generate superior returns.

Analyst Derek Hewett stated that Compass Diversified is a successful investment and business management company that buys businesses, works to improve their performance, monetizes the investments and recycles the capital.

The company is poised for “robust current income with capital appreciation upside, generating an attractive 22 % total return over the next 12 months,” Hewett added.

Compass Diversified’s strength lies in its extensive track record of partnering with subsidiary management teams to build middle market franchises that are highly successful within the branded consumer and industrial industries.

In the report BofA Merrill Lynch noted, “Since inception in 2006, the company acquired 12 platform businesses and monetized seven subsidiaries for total realized gains of over $500 million.”

“We anticipate total upside of about 22%, including a robust yield of 9%, as investors gain appreciation of CODI’s unique business model and management’s ability to maximize long-term value. We expect a stronger economic outlook and improving subsidiary performance, which are principally leaders in n their respective niche markets, to contribute to top and bottom line adjusted growth,” Hewitt added.

The analyst expects Compass Diversified to use its excess liquidity to acquire new platforms and add on investments.