DA Davidson downgraded B&G Foods, Inc. BGS to Neutral from Buy citing the equity dilution from the recent 3.75 million share offering.
"The announcement comes as a modest surprise as the offering back in March was only for half of the $300 million the company originally projected. At the current stock price, the deal size would be $191.6 million (~$220 million with the greenshoe)," analyst Eric Gottlieb wrote in a note.
That said, cash flow has brought net leverage down to 4.6x, below the 5.0x threshold the company aims to be at before making an acquisition, diminishing the need for the offering. However, Gottlieb cut his FY16 and FY17 EPS estimates to $2.13 in both years to account for the offering.
Gottlieb maintained his target price at $52, based on 20x new EPS estimate plus $9-$10, which accounts for the balance sheet flexibility to make a large acquisition.
"We note another Green Giant type deal would add about $10 to our valuation," Gottlieb highlighted.
The stock fell 4.7 percent to $48.65 in Tuesday's session.
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