FBR Capital Raises Price Target on Spark Energy (SPKE) as Announced Acquisitions Overshadow 1Q Results

FBR Capital reiterated an Outperform rating on Spark Energy (NASDAQ: SPKE), and raised the price target to $32.00 (from $27.00), following the company's 1Q earnings report. SPKE's 19.1% adjusted EBITDA margin was the highest since it became a public company. However, results were overshadowed by the company's two announced acquisitions, paid for largely by issuing 2.9M million shares at $20/share. The first acquisition is Major Energy, which adds 210,000 RCEs in largely the same territories in which Spark operates in the Midwest and Northeast. The second acquisition is Provider Energy, LLC, which adds 125,000 RCEs in Maine and New Hampshire and layers in another 24 utility territories.

Analyst Carter Driscoll commented, "Strong 1Q and two acquisitions, we believe accretive, should drive more EBITDA growth. SPKE, yesterday, reported very strong 1Q16 results: $21.1M in adjusted EBITDA, well ahead of our forecasts and consensus. The 19.1% adjusted EBITDA margin was the highest since it became a public company. The natural gas unit gross margin was $3.95, up over 40% YOY, with taking advantage of falling commodity prices and nimble hedging helping to drive the outperformance. More importantly, SPKE announced two acquisitions, paid for largely by issuing 2.9M million shares at $20/share (or $60M before earn-outs, assumed liabilities, and seller financing). The acquisitions should be accretive starting in early 3Q16, with an annualized $39M EBITDA run-rate and with an additional 335,000 residential customer equivalents (RCE). SPKE has integrated five companies/customer books over the past 18 months, which gives us confidence that these integrations will prove successful as well. Due to the acquisitions and expected impact, we raise our estimates for 2016 and 2017 and increase out price target to $32, from $27. We remain buyers of the shares and believe the company may pursue additional acquisitions over the next few quarters."

For an analyst ratings summary and ratings history on Spark Energy click here. For more ratings news on Spark Energy click here.

Shares of Spark Energy closed at $28.34 yesterday.

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