Courtesy Diversey
Wall Street is surprisingly high on a new cleaning stock.
(ticker: DSEY) provides cleaning chemicals, equipment, and services for industrial and commercial hygiene. Diversey, founded in 1923, was once part of
(SEE), which sold the unit to private equity firm Bain Capital in 2017 for about $3.2 billion. Bain cut costs, improved margins, and brought the company public again this past month. Despite weak trading out of the gate, Wall Street almost uniformly recommends buying Diversey stock.
Diversey’s IPO qualifies as a broken deal. That means the stock is trading below its $15 IPO price, not something bankers want to see. Shares closed at $14.98 in their first day of trading. And shares are still trading lower: On Monday, they closed at $14.04.
(ECL) is the closest comparable company to Diversey. Diversey’s market cap is roughly $4.3 billion. Ecolab, with its $63 billion valuation, is far larger.
Eight of the nine analysts who launched coverage of Diversey on Monday rated shares Buy. The average price target for Buy-rated analysts is about $19.50 a share, almost 40% above where the stock currently trades.
Those nine ratings arrived on Monday because the brokerages that launched coverage were involved in the IPO. Rules prevent participating brokers from launching coverage of a stock immediately after the public offering.
‘ Manav Patnaik was the lone analyst who rated shares Hold, making him all that stood between Diversey and a perfect 100% Buy-rating ratio. Still, his price target for shares is $16, a dollar higher than Diversey’s IPO price.
Baird analyst Andrew Wittmann was one of the Buy-rated analysts who launched coverage on Monday. He said in his initiation presentation that 90% of Diversey sales come from consumable products and most of the company’s products are low costs items that help customers save resources and money.
His target price is $18 based on about 31 times estimated 2021 earnings. Ecolab, for comparison, trades for about 43 times estimated 2021 earnings. Ecolab, of course, is the 800-pound gorilla in the corporate hygiene market. Plus, it has less debt than Diversey does. Being larger and less levered is one reason Ecolab has a higher valuation multiple. Still, with Diversey stock trading at about 24 times Wittmann’s estimated 2021 earnings, he sees an opportunity.
Most of Wittmann’s peers agree but, despite the bullish views, Diversey stock was down 2% in Monday trading. The
and
fell 0.5% and 0.3%, respectively.
Investors don’t seem all that interested in Diversey stock at the moment even after Monday’s calls to purchase. But if you agree with the Street, the small-cap could be an opportunity.
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