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The Aftermath Of SunOpta's Agreement With Oaktree Capital

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The Aftermath Of SunOpta's Agreement With Oaktree Capital

D.A. Davidson reiterated its Buy rating and $7.50 on SunOpta, Inc. (USA) (NASDAQ: STKL), despite terming its deal with Oaktree Capital a "painful option."

Oaktree invested $85 million in SunOpta in exchangeable preferred shares. The company now owns 11.7 percent of SunOpta with a cap at 19.99 percent that may be removed upon shareholder approval.

The investment deal came after West Face Capital and Tourbillion (top holder) were pushing for a sale of the company, though Tourbillon stated later that a sale was not in the best interest at the time.

Related Link: SunOpta Announces Strategic Partnership With Oaktree, Secures $85M Equity Investment

The company would use investment to reduce the $310 million debt and cut down the leverage to 1x. The brokerage expects the lower leverage will aid the company in refinancing the remaining $225 million at a lower rate.

"While this was not the favorable investor action we had hoped for, and was rather painful to watch, we believe the partnership has removed a few overhangs and we await an update on the strategic plan when the company reports F3Q," analyst Eric Gottlieb wrote in a note.

Gottlieb cut his FY16 and FY17 estimates to $0.22 and $0.40 from $0.23 and $0.47, respectively, driven by the dilution associated with the additional preferred shares and preferred dividend payment.

"We still maintain that the risk-reward remains favorable as the company migrates, though not cleanly, to becoming more of a proactive CPG company. The partnership with Oaktree also creates an opportunity as it has had success extracting the value from other businesses," Gottlieb added.

At the time of writing, shares of SunOpta fell 1.69 percent to $6.40. However, by last check, the stock had rebounded to $6.53, settling up 0.38 percent on the day.

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Latest Ratings for STKL

DateFirmActionFromTo
Apr 2021Canaccord GenuityInitiates Coverage OnBuy
Dec 2020Craig-HallumInitiates Coverage OnBuy
Jul 2020DA DavidsonInitiates Coverage OnBuy

View More Analyst Ratings for STKL
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