smiltena/iStock via Getty Images
Vista Outdoor Inc. (NYSE:VSTO) mainly develops and manufactures outdoor recreation and shooting sports products. The company recently acquired Simms Fishing Products, which manufactures and trades fishing tackle and apparel. I believe This acquisition can accelerate Vista Outdoor’s growth by introducing it to the fast-growing market.
VSTO is engaged in the design, manufacture and sale of outdoor recreation and shooting sports products. The Company operates its business through two reportable segments: Sporting Goods and Outdoor Products. The production and sale of components, ammunition and other related equipment and accessories are part of the Sporting Products segment. The sports products segment generates about 57% of the company’s total sales. The Sporting Products segment primarily serves the military, recreational shooters, hunters and law enforcement agencies and produces ammunition products such as rimfire, pistol, rifle and shotgun ammunition. This segment continues to consist of the Munitions operating segment, which operates the munitions business, including Speer, CCI, Federal and HEVI-Shot.
The Outdoor Products reportable segment focuses on the development, sale and manufacture of equipment and gear that help enhance end-users’ outdoor experiences. These end users include hikers, campers, skiers, snowboarders, hunters, cyclists, and golfers. This segment produces unique hydration solutions, hunting and shooting accessories, outdoor cooking solutions, bicycle accessories, action sports helmets, goggles and footwear, golf GPS units, outdoor sports speakers, laser range finders, and golf launch monitors and simulators. This reportable segment consists of the Accessories, Sports Protection, Cycling, Outdoor Cooking, Hydration and Golf business segments. The outdoor products segment contributed about 43% of the company’s total sales.
The company has 26 manufacturing and sales facilities in the United States, Canada, Puerto Rico and Mexico. The company sells its products through independent retailers and distributors such as Dick’s Sporting Goods, Kiesler Police Supply, Amazon, Academy, Sports South, Sportsman’s Warehouse, Nations Best Sports and Walmart.
Acquisition of Simms Fishing Products
During the global Covid-19 pandemic, the seafood industry experienced a drop in demand due to physical distancing restrictions. Following the easing of these restrictions, the industry has seen a significant rebound in demand, which is expected to continue as consumer interest in fishing activities increases. To meet this rapidly growing demand, the company recently acquired Simms Fishing Products for a purchase price of $192.5 million.
Simms sells fishing apparel and tackle in Bozeman, which is well known for fly fishing activities. It produces waders, bags, outerwear, shoes, clothing and other tools and accessories. This acquisition has significantly strengthened Vista Outdoor financially with additional net sales of approximately $110 million. Under the terms of the agreement, Simms will anchor a new platform for fishing category products within Vista Outdoor’s outdoor product segment.
The Company operates in a highly competitive industry where competitors compete based on product offerings, product innovation, product features and marketing programs. I believe this acquisition can significantly strengthen the company’s position in the market as it will anchor a separate fishing platform in its outdoor product segment, which can help it break into the fishing gear market where demand is currently increasing and continuing to do so rapidly should grow pace.
The company does not sell any products related to the fishing tackle and apparel market. As such, I think this acquisition ultimately expands the company’s product offering, which I believe can significantly expand its addressable market in the years to come and further increase its profit margins by selling more diversified fishing tackle products in the market. In addition, some of Simms’ popular products, such as B. Waders, which already have high demand in the market, act as a supporting catalyst to increase the company’s sales volume by further increasing its profit margins.
What is the main risk VSTO faces?
Vista Outdoor competes with other manufacturers with well known brand names and dominant market positions in a highly competitive industry. The company competes with other manufacturers with well-known brand names and dominant market positions in a highly competitive industry. The company faces several key competitors in each market due to the diversity of its product offering, including Nikon and Vortex in the optics sector; Hydro Flask, Contigo, Osprey, Yeti and Nalgene in the field of hydration systems. In the field of outdoor cooking, the company faces Blackstone, Pit Boss, Traeger and Lodge; Schwinn, Bontrager, and Shoei in bike and snow helmets and accessories, and Nikon, Garmin, and Trackman Price, product innovation, quality, performance, styling, reliability, and product features are just a few of the variables affecting competition in the markets where the company competes. Competition can lower product prices, which can adversely affect a company’s business, financial condition or results of operations.
The Company’s acquisition of Simms Fishing Products may accelerate the Company’s growth by entering the fast-growing fishing products market. Additionally, Simms makes certain products, such as waders, that are in very high demand and can serve as a supportive catalyst to increase sales volume.
After considering all of the above factors, I estimate earnings per share for fiscal 2023 to be $7.35, giving an expected P/E of 3.56x. After comparing the forward P/E of 3.56x to the industry median of 11.77x, I think the company is undervalued. The company faces intense competition in the market. In the current scenario of rising inflation, competitors could fight on the basis of price, which may eat into the company’s profit margins in the years to come. Because of this, I believe the company may be trading below its sector median.
After considering all of these factors, I estimate that the company could trade at a P/E of 6.30, giving a target price of $46.30, up 76.8% from the current share price of $26.19 .
Vista Outdoor recently acquired Simms Fishing Products, which I believe can accelerate the company’s growth by entering a new market segment with rapidly increasing demand. The company operates in a highly competitive industry. In the current scenario of rising inflation, competitors could fight on the basis of price, which may eat into the company’s profit margins in the years to come. After comparing the forward P/E of 3.56x to the industry median of 11.77x, I think the company is undervalued. After analyzing all of the above factors, I give a buy recommendation for Vista Outdoor.