DRII is reportedly considering going private with a leveraged buyout but at the same time, they are open to other strategic alternatives. Shares are fighting off market weakness and could be about to break out over resistance at $24.
NEW BULLISH Plays
DRII - Diamond Resorts Intl - Company Profile
Diamond Resorts is rumored to be planning to take itself private in a leveraged buyout as the result of a previously announced strategic review. Analysts are expecting a deal price in the $32-$35 range. The company has a network of 375 vacation destinations in 35 countries. The firm hired Centerview Partners to evaluate all strategic alternatives after two major shareholders requested the board take action including an outright sale. Marriott Vacations Worldwide and Wyndham Worldwide could be suitors. More than 23% of DRII shares are sold short.
The company recently announced its 10th straight quarter of record financial performance and issued guidance for 2016 calling for another record year. Despite the record performance the share price had declined -25% in 2016. Apparently, this caused two large shareholders to turn up the heat and tell the company to get something done to increase the share price.
Starwood Hotels recently sold its timeshare business to Interval Leisure Group for $1.5 billion or 12 times trailing Ebitda. Diamond Resorts is only trading at 9.5 times with a forward multiple of 6.2 times or significantly undervalued to the Starwood sale. This suggests someone could pay $30 for Diamond and still be accretive to earnings in 2016 without accounting for synergies.
The Diamond CEO is also the founder and he owns 25% of the company. That suggests a LBO might be the most likely option so he can keep his stake.
Earnings May 25th.
With a DRII trade at $24.25
BUY DRII shares, initial stop loss $20.50.
No option recommended because of wide spreads and high prices. However, you could buy the shares and sell a covered call with the May $25 call @ $2.90.
NEW BEARISH Plays
No New Bearish Plays