The share price of Webjet Limited (ASX: WEB) has backtracked from its June 20, 2017 record high of $12.71 but at least one broker thinks the stock is well placed to fly higher over the short to medium term following its biggest acquisition to date of European-based JacTravel.
It wasn't just Webjet that was on the back foot though. The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) slipped 0.5% into the red after giving up early gains on Tuesday, although Webjet's shareholders were worse for wear given the stock's more dramatic 5.7% plunge to $11.23.
This pull back could be a good time for investors to buy into the stock as Credit Suisse resumed coverage on the stock with an "outperform" recommendation and upgraded price target of $13.15 from $12.42.
The broker is particularly bullish about the JacTravel acquisition as it believes the deal represents both a step-change to Webjet's business-to-business (B2B) operations and a further diversification from the booking fee-driven business-to-consumer (B2C) business.
The broker goes on to call the $330 million acquisition "transformative" as it believes JacTravel will be 12% earnings per share (EPS) accretive in FY18 and 23% accretive the following year, as FY19 will be the first full year that JacTravel will be contributing to group earnings.
Management also calls the acquisition "highly complementary" in terms of geography, product and wholesale/retail mix which will lift Webjet's B2B total transaction value (TTV) from $482 million to $1.4 billion.
News of the acquisition and capital raising to fund the deal comes ahead of Webjet's full year result on August 31 and shareholders can expect more good news then too. Credit Suisse thinks management has already beaten its earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of $61.5 million and that the company has enjoyed very strong operating cash flow generation in the second half of FY17.
But investors will be more focused on what lies ahead for Webjet and the future is looking pretty bullish given the expected solid contribution from JacTravel.
The stock isn't cheap though after surging 45% over the past year alone (and up over 200% in the past five years!), which puts it on a price-earnings (P/E) multiple of nearly 23 times. Those willing to take a longer view on the stock can at least take heart knowing that this multiple drops back to a more reasonable 15.7 times in FY19.
Looking for other exciting "buy" ideas? Click below to see how you can get your free stock report from the experts at the Motley Fool.
