Market Overview Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Share: Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

After months of rumors, Inc (NYSE: CARS) announced Wednesday its ongoing review of strategic alternatives, including a possible sale.

What Happened

Management has been working with external advisors to initiate a process since receiving Board authorization Sept. 28.

"We are confident in the Company's strategy to expand from a classified listings model into a leading online automotive marketplace solutions provider,” Chairman Scott Forbes said in a press release. “We have undertaken a number of actions toward positioning the Company to drive growth and achieve sustainable market leadership in our sector. We remain committed to that plan, but in light of multiple inquiries which indicate the possibility of realizing that future value now, and after careful consideration, we took the decision to explore strategic alternatives in late 2018.”

Why It’s Important has been an independent company for less than two years, and throughout that time, underperformance has inspired activists and the firm’s third largest shareholder, Starboard, to press for changes.

“Interestingly, while we believe dealer count remains challenged, inorganic efforts and traffic improvements have surprised to the upside in recent months, although it appears it may be too little too late and we suspect unlikely to be enough to persuade Starboard to give the current management team more time,” Benchmark analyst Dan Kurnos wrote in a note.

Citing challenges in the organic business, Kurnos anticipates declines in the national and legacy segments and expects dealer attrition to stunt earnings. Additionally, he foresees harm from a company sales.

“We acknowledge that a buyer could harvest the incremental cash flow savings, which would prop up EBITDA over the medium term and possibly the sale price, but which would also have a longer-term negative impact on revenue growth and cash flow in years 3-5 in our view,” he wrote.

What’s Next

Kurnos speculated possible buyout interest from Reynolds, Cox and Edmunds, and he also posited the possibility of a cash-flow buyer or strategic partnership.

“While we do see the potential for a sale in the high $20 to low $30 range, we believe the buyer pool could be limited by Cars’ lack of growth, with an ultimate sale to either a strategic or private equity far from a certain thing,” he wrote.

Management has not set a timeline for the review process and does not plan to comment on progress until the board has approved specific action.

Shares traded higher by 10.3 percent to $25.55 in Thursday's pre-market session.

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Latest Ratings for CARS

Sep 2019UpgradesHoldBuy
Aug 2019MaintainsBuy
Aug 2019DowngradesOutperformMarket Perform

View More Analyst Ratings for CARS
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