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Exchange Income Corp keeps “Buy” rating at TD

Following a recent acquisition, TD analyst Tim James remains bullish on Exchange Income Corp (Exchange Income Corp Stock Quote, Chart, News, Analysts, Financials TSX:EIF)

As reported by the Globe and Mail, James this week maintained his “Buy” rating on EIF stock, but cut his price target from $66.00 to $65.00. The analyst explained the reasoning behind the move.

“The reduction is due to higher valuation-period net debt and shares outstanding, partially offset by higher valuation-period forecast EBITDA,” he said. “The increase o net debt and shares outstanding reflects the financing of the DryAir Manufacturing acquisition. The bias lower to our 2023 EBITDA and EPS forecasts primarily reflects updated currency, fuel, economic, and other minor assumptions, partially offset by one-quarter of contribution from DryAir Manufacturing. Our 2024 EBITDA forecast is higher primarily due to DryAir Manufacturing, while higher interest and shares outstanding negatively impact EPS. We believe Exchange’s business diversification positions it better than less-diversified peers to navigate economic conditions and that it represents a good investment for yield-focused investors based on its forecast FCF and management’s track record of maintaining a disciplined approach to investments at accretive valuations.”

On October 5, Exchange Income announced the acquisition of DryAir Manufacturing Corp for $60-million. Saskatchewan’s DryAir was was founded in 1994 and sells portable hydronic heating systems.

“EIC is excited to grow our manufacturing segment with the acquisition DryAir, Exchange Income CEO Mike Pyle said. “When we visited the operations of DryAir in St. Brieux, Sask., we were immediately impressed with the management team and high-quality products that it produces. The culture and values of DryAir are very similar to that of EIC. It was immediately evident that management understood the business model of EIC and that EIC was a perfect match for the next phase of DryAir’s legacy. DryAir checks all the boxes that we look for in acquisitions. They have a strong management team, company culture, industry reputation and sustainable growing cash flows.”

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