Shares of outdoors sporting enthusiast Vista Outdoor (NYSE: VSTO) surged in response to a strong Q3 2018 earnings report Thursday, closing the day up 11.7%.
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Vista reported quarterly profits of $0.94 per share, beating analyst predictions for a $0.07-per-share profit. Even on a pro forma basis, "adjusting" for one-time gains, Vista's profit came to $0.13 per share, or nearly twice what Wall Street had been expecting. Sales for the quarter exceeded expectations, coming in at $581.2 million, slightly ahead of Wall Street's expectations of $578.2 million.
Vista Outdoor CEO Chris Metz characterized the results as "solid," and I suppose they were -- relative to Vista's recent past performance, at least.
After multiple quarters featuring cratering profits and weak forecasts, Vista, on Thursday, again reported a year-over-year decline in sales (down 11%) and worse gross profits -- down 25%. Still, the company's $0.94-per-share GAAP profit was a big and welcome change from the $6.44 per-share loss Vista had booked one year prior. Additionally, Vista reported that it generated positive free cash flow of $205 million in Q3 2018 versus cash burn of $18 million in the year-ago quarter.
The best news of all, however, was that, in forecasting full-year results, Vista was finally able to raise its guidance. Management said that when fiscal 2018 draws to a close, it expects to report sales of approximately $2.25 billion, a GAAP loss of $1 to $0.90 (but an "adjusted" profit), and free cash flow of about $180 million.
Weighed against the company's $997 million market capitalization, this latter projection implies a valuation of just 5.5 times current-year free cash flow for Vista stock. At that valuation, almost any amount of growth in the future should be sufficient to justify buying the stock. The 10% growth consensus among analysts surveyed by S&P Global Market Intelligence should be more than enough to make Vista stock a "buy" at today's prices.
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