Aegis Capital initiated coverage of Escalade Inc. and Nautilus Inc. Both earned a “Buy” rating.
In a note issued on September 25, Rommel Dionisio, Aegis Capital’s analyst, said Escalade has as “lengthy and successful track record of acquisitions of smaller niche brands in the highly fragmented sporting goods sector.” He noted Escalade’s primary competition often comes from privately held or family-run one product businesses and Escalade has an advantage with its scale, infrastructure and established retail relationships.
Dionisio also said Escalade has been able to leverage its acquisitions to enter new categories such as crossbows and portable basketball goals. Finally, Dionisio said that with its leading market share in many categories and with less private-label competition online versus brick & mortar chains, Escalade is better positioned than competitors to capitalize on online’s fast growth. Wrote Dionisio, “Escalade can better manage order flow and inventories with Amazon and other online retailers.”
The “Buy” rating included a 12-month price target of $16.
Escalade’s brands include Bear Archery, Trophy Ridge, Whisker Biscuit and Cajun Bowfishing in its archery segment; Stiga, Ping-Pong and Prince in table tennis; Goalrilla, Goaliath and Silverback in basketball goals; Woodplay and ChildLife in Play Systems; The Step and USWeight in fitness; Atomic, American Legend and Redline in game tables (hockey and soccer); Mizerak, Minnesota Fats, Lucasi, Purex, Rage and Players in billiards accessories; Unicorn, Accudart, Arachnid, Nodor and Winmau in darting and Zume Games and Pickleball Now in outdoor games.
In a note issued on September 11, Aegis Capital initiated coverage of Nautilus with a “Buy” rating and a $21 12-month price target.
Dionisio noted that Nautilus achieved growth in organic sales in excess of 20 percent from 2012 to 2015 due to by successful new product introductions in both direct and retail channels. Opportunities continue to present itself in the growing “smart” fitness equipment segment. Nautilus’ launch this past spring of the industry’s first home gym tailored to Crossfit-style workouts “is already off to a strong start,” noted Dionisio. International, now representing 6 percent of sales, also remains a largely untapped opportunity.
Nautilus’ operating margins have risen from 5.5 percent in 2012 to about 13 percent currently due to new product introductions and supply chain efficiencies and margins should continue to improve given its aggressive product introductions.
Finally, the recent selloff in Nautilus’ stock presents a buying opportunity.
Dionisio wrote, “Largely due to a deliberate decision to pull back on broadcast advertising during last fall’s election, as well as the temporary impact of recent sporting goods store closures, Nautilus has posted below trend sales and earnings performance the past four quarters, resulting in a sharp downturn in the stock price. However, given an expected return to more normalized double-digit organic sales growth in the second half of 2017, we believe the recent selloff in shares of NLS represents an attractive buying opportunity.”
Photo courtesy Bear Archery
