Raven to Buy Vista Research

The Aerostar division of Raven Industries Inc. (RAVN">RAVN) inked a deal to acquire Vista Research Inc. for an initial cash consideration of $12 million, with payments of up to $38.5 million in added benchmark and earn-out over the coming seven years. The acquisition is expected to close in January pending closing conditions.

Raven expects the acquisition to be accretive to its earnings and generate solid return on investments plus cash flows.

Vista Research is a leading provider of surveillance systems. Its smart sensing radar systems are used in advanced detection and tracking applications. As such, this acquisition will augment Raven Aerostar’s aerostat security solutions.

Aerostar will henceforth be able to supply more competitive aerostat systems with the help of Vista's radar processing technology and be able to access a wider customer base.

Vista Raven also expects to combine Vista's technology with its Marine navigation to offer improved port security. Also, going forward, this acquisition will help Raven to cater to the growing demand for low priced detection and tracking systems used by government and law enforcement agencies.

Raven expects to develop products for identifying and tracking small objects over land, on water and in air. The company also believes that its innovations will augment or might substitute the traditional, high-cost radar systems presently in use.

The Aerostar division reported a dip in sales for the fiscal third quarter. We believe this acquisition will help the division to turnaround in due course.

The Zacks Consensus Estimate for fiscal fourth quarter 2012 is 48 cents per share. For fiscal years 2012 and 2013, the Zacks Consensus Estimates are, respectively, $2.65 and $2.93 per share.

The company continues to make significant investments to build international sales and boost its overall revenues. Further, Raven’s debt-free balance sheet and solid cash flow provide the scope to fund future growth and hike dividends.

We retain our Outperform recommendation on Raven Industries. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.

South Dakota-based Raven Industries Inc. is an industrial manufacturer providing a variety of products for the agricultural, industrial, construction and military/aerospace markets. Graco Inc. (GGG">GGG) andSpartech Corp. (SEH">SEH) are the two close competitors of Raven.