The lower rating comes after a "largely price in" deal that allowed Apollo Global Management (APO) - Get Report to acquire Diamond Resorts Wednesday for $2.2 billion, or $30.25 a share.
The firm believes the deal "undermines the strength of FCF and earnings of the timeshare business model, highlights, in our view, that concerns around the pace and risk of defaults were overblown, and reinforces the lack of real regulatory issues facing the industry, despite consistently being raised as an issue by short-sellers."
MKM raised Diamond Resort's price target to $30.25 from $26 based on the acquisition.
"We believe the important read across for the industry is the vote of confidence in the timeshare business model as opposed to the multiple paid," MKM Partners noted.
Diamond shares are down 0.13% to $29.74 in early morning trading.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate DIAMOND RESORTS INTL as a Hold with a ratings score of C. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and a generally disappointing performance in the stock itself.