December 26, 2017 / 4:29 PM / 3 months ago

KLX hits record high as it explores strategic alternatives

Dec 26 (Reuters) - Shares of U.S. aerospace parts distributor KLX Inc rose as much as 11 percent to record high on Tuesday, as it explores strategic alternatives including a sale of the company or one of its two businesses.

KLX, spun off from B/E Aerospace in 2014, made the announcement on Friday after markets closed and said it had not set a definitive timetable for completion of its review of strategic alternatives.

KLX distributes aerospace fasteners and consumables to part suppliers of commercial and military aircraft, business jets and helicopters.

The aerospace business — which counts Honeywell International Inc as one of its top customers — generated about 90 percent of its fiscal 2017 revenue.

The company also has an energy services business which serves customers in the oil and gas industry.

There is an 80 percent probability that the entire company could be sold, according to Jefferies analyst Sheila Kahyaoglu.

“Given the amount of M&A in the aerospace and defense sector over the past 18 months, a strategic buyer could be likely, and financial buyers could also be tempted by the company’s high and stable cash flow profile,” Kahyaoglu wrote in a note.

Kahyaoglu estimates KLX could generate cash flow of about $196 million in fiscal 2018 and $273 million in fiscal 2019, a 100-120 percent conversion on adjusted net income.

Up to Friday’s close of $63, KLX’s shares had risen about 40 percent this year. (Reporting by Ankit Ajmera in Bengaluru; Editing by Shounak Dasgupta)

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