The analyst firm maintained its price target of $9.50 for the homebuilder.
Credit Suisse said it recognizes the "strategic reasoning" behind Standard Pacific's acquisition of Ryland (RYL), and appreciates "management's track record of execution." The firm's analysts wrote, "We believe that integration risk in combination with a relatively full valuation based on our initial pro-forma projections for earnings and book value create a less favorable risk/reward profile."
"When excluding purchase accounting and integration costs, our analysis suggests that the acquisition will be largely neutral to SPF EPS in '16 with accretion beginning in '17. We believe, however, that '16 EPS will be negatively impacted by ~$0.44 inclusive of purchase accounting (we est. a 110 bps GM headwind) and integration costs," the analysts continued
Insight from TheStreet's Research Team:
Standard Pacific is a part of David Peltier's Stocks Under $10 Portfolio. Here is what Dave had to say about the stock in a recent alert:
The deal is expected to close in the fall, at which time Standard Pacific will conduct a one-for-five reverse-stock split. After the split, Ryland investors will receive 1.0191 share, which will result in Standard Pacific shareholders controlling 59% of the combined company. Standard Pacific CEO Scott Stowell will be the executive chairman of the combined company. Ryland CEO Larry Nicholson will retain the same title.
We believe the merger makes both strategic and financial sense. The combined company will be a top-five player in 15 of the top 20 U.S. markets. In addition, management expects to realize $50 million to $70 million of annual cost savings by the end of 2016.
We maintain our One rating on the stock, which was trading around $8.86. We believe that Standard Pacific can move into the double digits in coming quarters.
Separately, TheStreet Ratings team rates STANDARD PACIFIC CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate STANDARD PACIFIC CORP (SPF) a HOLD. 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, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 2.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- STANDARD PACIFIC CORP's earnings per share declined by 11.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STANDARD PACIFIC CORP increased its bottom line by earning $0.53 versus $0.47 in the prior year. This year, the market expects an improvement in earnings ($0.62 versus $0.53).
- The debt-to-equity ratio of 1.33 is relatively high when compared with the industry average, suggesting a need for better debt level management.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Household Durables industry and the overall market, STANDARD PACIFIC CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SPF Ratings Report