KeyBanc: Newly Public Gates Industrial Has Tripled Its Total Addressable Market

Gates Industrial Corp PLC GTES is likely to see its share price climb higher, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc analyst Jeffrey Hammond initiated coverage of the shares of Gates Industrial with an Overweight rating and $22 price target.

The Thesis

Gates Industrial is a unique industrial asset, characterized by best-in-class profitability with 22-percent-plus EBITDA margins and a highly favorable recurring revenue mix, Hammond said in a Tuesday note. (See the analyst's track record here.) 

The Denver-based company derives 58 percent of sales from the industrial sector and the remaining 42 percent from automotive markets and is known for its "unparalleled product breadth ... reliable global presence and particular commitment to replacement," Hammond said. 

"We believe the new management team, which arrived in 2015, possesses a well-articulated blueprint for accelerated growth and sustained margin expansion, having already lifted EBITDA profitability by 300 bps in just three years," Hammond said. 

Gates' management team has effectively tripled the company's total addressable market to $60 billion, the analyst said. 

Hammond said he expects the company to make notable progress toward its Phase 2 objectives of 6-percent core growth and margin expansion of more than 100 basis points through 2019.  

Gates is also expected to improve its free cash flow, taking the company to less than 3x debt-EBITDA by the close of 2019, according to KeyBanc. 

The Price Action

Gates Industrial offered 38.5 million shares in a Jan. 25 IPO at $19 each. After listing at $19.05, the stock closed its debut session at a 2.63-percent discount to its offer price at $18.50.

Since then, the stock has shed about 1.1 percent.

Related Links:

9 IPOs To Debut This Week: Drugs, Drugs, And More Drugs 

Dell Reportedly Exploring Reverse Merger With VMWare, Potential IPO