Summit Materials (SUM) Deal Implies A Shift For Argos

DA Davidson analyst Brent Thielman reiterated a Buy rating and $20.00 price target on Summit Materials (NYSE: SUM) after Reuters reported that Grupo Argos has approached Summit Materials regarding a potential merger.

The analyst believes the deal is strategically logical with limited overlap of operations. Regulatory competitive concerns should be minimal also since Argos plants/operations are in Florida, West Virginia, South Carolina, and Alabama and have little overlap with Summit strongholds in Texas, the Midwest, and Mountain regions.

However, he stated "Despite the benefits of a more diverse geographic U.S. platform(and clear interest in expanding share here), latest reports/commentary indicate Argos management has been intent/focused on reducing its leverage ratio and improving financial flexibility with a target of 3.2x by June 2020 (3.55x stated at the end of 1Q). Combined 2019 EBITDA for the companies would approach $1B ($993.6M assuming our current Summit est. of$448.6M and Argos consensus of $545.7M); while cumulative debt (Argos’ $2.23B + Summit’s$1.9B) would be $4.1B. A transaction of Summit’s size/scale would be a shift in stated direction for Argos unless supplemental financing to debt were put in place, clearly complicating a transaction".

For an analyst ratings summary and ratings history on Summit Materials click here. For more ratings news on Summit Materials click here.

Shares of Summit Materials closed at $15.61 yesterday.

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