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NN Divests Life Sciences Unit, To Use Funds for Paying Debts

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NN, Inc. (NNBR - Free Report) yesterday announced that it completed the divestment of its Life Sciences division for $825 million. The other party to the transaction was the affiliates of American Securities LLC.

It is worth noting here that NN’s share price decreased 3.5% yesterday, closing the trading session at $5.82.

The divested Life Sciences division will become part of MW Industries — a constituent company of American Securities. It is worth noting here that MW Industries provides multiple products — including bellows, engineered springs, specialty fasteners and various precision components.

Discussion on Divestment

As mentioned previously, the Life Sciences division of NN primarily provides its products and services in the orthopedics and surgical end markets. In second-quarter 2020, the division’s sales declined 20.7% year over year due primarily to weakness caused by the pandemic.

The transaction value of $825 million comprised of a cash component of $755 million and an earn-out of $70 million. The second component is based on the divested division’s performance in 2022. The net proceeds from the divestment are estimated to be $700 million.

The divestment is in sync with NN’s policy of strengthening the balance sheet, enhancing financial flexibility and improving shareholder value. Debt repayments, using the net proceeds, will likely aid the company to lower its net leverage to 1.8X.

Further, NN mentioned that the divestment of the Life Sciences division will enable it to concentrate on other growth-businesses, including Mobile Solutions and Power Solutions. Its diversified industrial platform will likely help it achieve annual sales of $600 million in the five years to come.

Zacks Rank, Estimate Trend and Price Performance

NN currently carries a Zacks Rank #3 (Hold). The company is to benefit from cost-saving actions and working-capital management efforts amid the present difficult environment caused by the pandemic.

In the past three months, its shares have gained 32.6% compared with the industry’s growth of 12.2%.

Meanwhile, the Zacks Consensus Estimate for its 2020 earnings has improved from a loss of 5 cents to earnings of 2 cents in the past 60 days. Similarly, the consensus estimate for 2021 has decreased from earnings of 47 cents to 33 cents during the same period.

NN, Inc. Price and Consensus

 

NN, Inc. Price and Consensus

NN, Inc. price-consensus-chart | NN, Inc. Quote

Stocks to Consider

Some better-ranked stocks in the Zacks Industrial Products sector are EnPro Industries, Inc. (NPO - Free Report) , The Timken Company (TKR - Free Report) and Altra Industrial Motion Corp. (AIMC - Free Report) . While EnPro Industries currently sports a Zacks Rank #1 (Strong Buy), Timken and Altra Industrial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for EnPro and Altra Industrial have remained stable for the current year, while the same has improved for Timken. Further, earnings surprise for the last reported quarter was 980% for EnPro, 209.09% for Timken and 76.47% for Altra Industrial.

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