Having its name-brand hockey sticks and helmets showcased at the Olympics should benefit sales at Bauer Performance Sports Ltd., but investors are betting on its new baseball business to boost the stock longer term.
Bauer shares hit an all-time high on Monday and analysts are forecasting the stock will continue to climb now that the company is adding the Easton baseball and softball products to its lineup.
The recent $330-million (U.S.) purchase of the division from Easton-Bell Sports Inc. will diversify the company's product mix and should give it more consistent year-round revenues.
It's the latest in an acquisition streak for the company, which is expected to further expand into other sports.
"Acquisitions will continue to be a very significant part of our growth strategy," Kevin Davis, chief executive officer of the Exeter, N.H.-based company, said in an interview. "We're just getting warmed up."
Bauer's stock has been on a breakaway recently, which could raise concerns among investors. Still, analysts remain fans.
"The perception is that the stock has already had a good run … but I think in this case the valuation isn't out of whack yet," says National Bank Financial analyst Trevor Johnson.
"If you want exposure to one of the better brands in the world, particularly in the sports arena … it's a nice way to play that."
Mr. Johnson is one of seven analysts with a "buy" recommendation on the stock, with one analyst saying "hold," according to S&P Capital IQ.
Bauer's stock chart resembles a hockey stick since the company went public in March, 2011, at $7.50 (Canadian) on the Toronto Stock Exchange. The shares dipped to around $5 a few months later, but have risen since, nearly doubling over the past two years.
Investors appear to like Bauer's growing brand roster. It has made four acquisitions in less than two years, including its purchase last spring of baseball bat manufacturer Combat Sports Inc. In 2012, it bought uniform maker Inaria International and lacrosse equipment maker Cascade Helmets Holding Inc.
Scotia Capital Inc. analyst George Doumet says the latest Easton acquisition will help to remove some cyclicality from Bauer's revenue stream.
"It's a game changer," says Mr. Doumet, who upgraded his recommendation to "buy" after the deal was announced last week and increased his target price to $17.50 from $14.50.
Roth Capital Partners analyst Dave King also has a "buy" on the stock, believing investors have yet to appreciate Bauer's ability to grow its business across multiple sports and brands.
The company is also eyeing a potential U.S. stock listing, which Mr. King says could bring it more attention and increase its valuation.
CIBC World Markets analyst Mark Petrie has a $16 price target on Bauer but a "hold" recommendation due to the debt Bauer took on to buy the Easton assets. He also cites slow growth in its core hockey business.
"While there are a lot of positives in Bauer's business, the lack of substantial growth opportunities in ice hockey, and the relatively small scale of the growth opportunities in its other business, namely lacrosse and apparel, don't leave me incredibly bullish about near-term earnings potential," he says.
Hockey revenues account for just over half of the company's sales. There is fierce competition in the hockey equipment market, especially for hockey sticks.
Bauer's Mr. Davis says growth in its hockey business has been "modest" over the past 12 months due to excess inventory. However, "I wouldn't suggest that is our macro view of the hockey industry over the long term," he says.
The company introduced a global program in the fall of 2012 to increase hockey participation among young people. It has a goal to add a million new players by 2022.
About a third of the company's overall sales are in Canada, a third in the U.S. and the rest in other parts of the world.
When it comes to future acquisitions, Mr. Davis says the company plans to look at "all sports that require high-performing gear." The company doesn't want to create new brands, but instead look at "authentic" ones where Bauer can grow the business.
He says the Easton deal was part of that strategy.
John Zechner, chief executive of J. Zechner and Associates, says his firm owns the stock but hasn't added to its position recently.
While the Easton deal stretches the balance sheet a bit, "for now," he believes it will give the company better brand recognition in the U.S., where baseball is a huge hit.