CDRE stock is a buy, Roth says

A new acquisition from Cadre Holdings (Cadre Holdings Stock Quote, Chart, News, Analysts, Financials NYSE:CDRE) is getting the thumbs up at Roth MKM.

On February 20, CDRE announced the acquisition of Alpha Safety Intermediate for $106.5-million.

“Alpha Safety is an ideal Cadre business,” said CEO Warren B. Kanders. “It is a leading manufacturer of engineered technical products supporting mission-critical initiatives with highly-visible, recurring revenue and compelling growth opportunities with entrenched customers. At the center of a global effort to ensure safe nuclear operations and hazardous waste handling, Alpha Safety has a long history of strong demand from the Departments of Energy and Defense, customers who prioritize performance, reliability, quality control and technical expertise. The business maintains leading positions across all its key product lines.”

Roth analyst Matt Koranda says he likes this deal.

“We have a positive view of the Alpha Safety acquisition, which looks like it will be a new platform for Cadre, and appears in line with management’s stated strategy of finding M&A opportunities for highly engineered/specialty products in the safety equipment and services space,” he said. “Management highlighted a large TAM ($2-6bn domestically), and several key growth drivers that should keep organic growth in the +4-6% range for the segment (three key pillars include (1) environmental clean-up, which appears driven by the Department of Energy budget, (2) national defense, where plutonium production needs to be ramped-up in the coming years, and (3) nuclear energy growth, where renovation of existing powerplants and impending small nuclear reactor adoption could drive growth in excess of the stated target. Importantly, M&A will likely play a role in expansion in this vertical, with management highlighting a robust pipeline of opportunities (>100 targets in Alpha’s funnel). Also notable, margins appear accretive (low-20% EBITDA margin vs. Cadre in the high teens).

In a research update February 20, Koranda maintained his “Buy” rating but raised his price target on the stock from $32.00 to $38.00.

The analyst thinks CDRE will generate EBITDA of $83.5-million on revenue of $482.4-million in fiscal 2023. He expects those numbers will improve to EBITDA of $99.7-million on revenue of $553.1-million the following year.