On Thursday, Instructure, Inc. (NYSE:INST) stock received a rating downgrade from Raymond James, transitioning from Outperform to Market Perform. The adjustment follows the announcement of Instructure's acquisition by private equity firm KKR in a deal valued at $4.8 billion.
The offer price of $23.60 per share is a 16% increase over the share price before acquisition rumors, aligning with approximately 6.5 times, 15 times, and 16 times Raymond James' 2025 Sales, Adjusted EBITDA, and unlevered free cash flow (uFCF) projections, respectively.
The analyst from Raymond James noted that the board of directors at Instructure has unanimously approved the acquisition, and with a significant 84% of the company's shares held by insiders, the likelihood of a competing offer seems slim. Consequently, the firm sees limited potential for additional gains for the company's shareholders.
The acquisition is slated for completion in the second half of 2024, which has led to the reassessment of Instructure's stock potential. The transaction is expected to provide a certain exit value for shareholders, given the premium offered on the current share price, and reflects the analyst's outlook on the company's future financial performance.
Given the anticipated closure of the deal and the premium offered to current shareholders, Raymond James has revised its view on the stock, suggesting that there may not be much room for the stock price to grow further. This is based on the current terms of the agreement and the market's reaction to the acquisition news.
The market's attention will now likely turn to the completion of the transaction and its implications for Instructure's operations and financials post-acquisition. Shareholders of Instructure will be monitoring the progress of the deal as it moves towards the expected closing in the latter half of 2024.
In other recent news, Instructure, Inc. has been the subject of multiple rating downgrades following its acquisition agreement with private equity firm KKR, a deal valued at $4.8 billion.
Raymond James, Truist Securities, Citi, and Jefferies have all revised their ratings, with the common consensus being a shift from 'Buy' to 'Hold' or 'Neutral.' This adjustment aligns with the offer price of $23.60 per share set by KKR, which is a 16% increase over the pre-acquisition share price.
The acquisition has been unanimously approved by Instructure's board of directors and is expected to close in the second half of 2024. Post-acquisition, Instructure will become a privately held company, and its common stock will be delisted from the New York Stock Exchange.
Instructure's recent financial performance shows a 20.7% year-over-year increase in first-quarter revenues to $155.5 million, primarily driven by a 22.1% rise in subscription and support revenue. Following these results, the company raised its fiscal year 2024 revenue outlook to a range of $656.5 million to $666.5 million.
Despite the acquisition, BTIG has maintained a 'Buy' rating on Instructure's stock, albeit with a reduced price target of $27. These are the recent developments in Instructure's market situation.
InvestingPro Insights
As Instructure, Inc. (NYSE:INST) prepares for its acquisition by KKR, the market is evaluating the company's valuation and growth prospects. According to InvestingPro data, Instructure has a market capitalization of $3.42 billion and is trading at a high revenue valuation multiple, which aligns with Raymond James' projections. Despite a negative P/E ratio of -78.2, which reflects challenges in profitability, analysts are optimistic, expecting net income growth this year. This sentiment is bolstered by the fact that 10 analysts have revised their earnings upwards for the upcoming period, reflecting potential confidence in the company's financial trajectory post-acquisition.
InvestingPro Tips highlight that while Instructure has faced profitability challenges over the last twelve months, with short-term obligations exceeding liquid assets, the company is trading at high EBIT, EBITDA, and revenue valuation multiples. Analysts predict the company will turn profitable this year, which could be a sign of improving financial health. Additionally, Instructure has demonstrated a strong return over the last three months, with a 20.1% price total return, showcasing market optimism in the short term. However, the company does not pay a dividend, indicating that investors are likely looking for capital gains rather than income from their investment in Instructure.
Investors can find additional insights and tips, including the InvestingPro Fair Value estimate of $20.6 USD, which is slightly below the analyst target fair value of $23.6 USD, by visiting https://www.investing.com/pro/INST. With more detailed analysis available, shareholders and potential investors can make more informed decisions as they watch the acquisition's progress and its impact on Instructure's future.
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