Resideo's $1.4B Purchase Of Snap One Is A 'Strong Strategic Fit': JPMorgan Sees 35% Upside

Zinger Key Points
  • Resideo's acquisition of Snap One offers a strategic fit and reasonable value, enhancing revenue and gross margin profiles.
  • Analyst Carpenter maintains Overweight rating for Resideo with a $27 price target, expecting continued profit improvement.

Resideo Technologies Inc‘s REZI recent acquisition of Snap One Holdings Corp SNPO has sparked investor interest. On Monday, Snap One announced it will be acquired by Resideo Technologies for $1.4 billion in cash.

We covered the news first here: Why Is Snap One Stock Jumping Premarket Monday?

Analyst Cory A. Carpenter from JPMorgan provided valuable insights on the acquisition, calling it a “strong strategic fit at reasonable value.”

Let’s delve into the implications for both Resideo and Snap One investors:

Resideo Stock – 35% Upside In Sight

  • Strategic Fit: Carpenter sees a strong strategic fit between Resideo’s ADI distribution business and Snap One. Both companies target the smart living market, with Resideo focusing on commercial security ,and Snap One primarily serving the home technology vertical.
  • Financial Perspective: The acquisition price of $10.75 per share for Snap One aligns with Carpenter's earlier fair value estimate of $11. This price is deemed reasonable, equating to about 10 times the projected 2024 adjusted EBITDA before merger synergies and 7.5 times including synergies.
  • Revenue Expectations: Resideo’s preliminary Q1 results indicate revenue at the midpoint of its prior outlook, suggesting continued improvement in profit and loss.
  • Long-term Outlook: Carpenter maintains an Overweight rating on Resideo stock, with a price target of $27. This represents a 35% upside from current price levels. Carpenter anticipates enhanced revenue and gross margin profiles over time, driven by synergies from the Snap One acquisition.

Snap One – Uniquely Strategic To Resideo’s Business

  • Complementary Verticals: Carpenter highlights the complementary nature of Snap One and Resideo’s vertical footprints. He emphasized potential for higher service professional wallet share and retention.
  • Distribution Expansion: Snap One’s acquisition by Resideo is expected to significantly expand the distribution of its products. Snap One can leverage Resideo’s physical footprint.
  • Financial Benefits: Snap One’s higher gross margin and adj. EBITDA margin, along with Resideo’s identified $75 million annual run-rate synergies, are anticipated to enhance profitability and drive long-term growth.
  • Regulatory and Financial: Carpenter doesn’t anticipate any regulatory hurdles or competing bids for Snap One. The merger agreement and financial terms provide stability and confidence in the deal’s completion.

Resideo’s acquisition of Snap One presents a compelling strategic opportunity for both companies. Carpenter’s insights shed light on the potential benefits for investors in the evolving landscape of smart living technology.

Read Next: S&P 500 Due For ‘Classic 10% Correction,’ Wall Street Veteran Warns: Why They Expect Zero Rate Cuts In 2024

Image generated using artificial intelligence using Midjourney.

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorLong IdeasM&ATop StoriesAnalyst RatingsTechExpert IdeasStories That Matter
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!