On Wednesday, Stifel adjusted its stance on Sterling Check (NASDAQ:STER), shifting from a Buy to a Hold rating, while increasing the share price target to $16.50, up from the previous $14.00. The firm's decision comes in light of the impending acquisition of Sterling Check by FA.
The analyst from Stifel noted that the current share price likely reflects most of the near-term gains expected from the deal, prompting the rating change.
The analyst elaborated that while the acquisition holds promise for future benefits and Stifel remains positive about FA's shares, the structure of the deal means that Sterling Check shareholders will have a somewhat limited participation in the potential growth of FA's stock.
Specifically, 28% of the buyout consideration for Sterling Check shares will be in FA equity, with the remainder in cash. This composition underpins the tempered expectation for Sterling Check's share performance as part of the deal.
Stifel's projections suggest that there could be approximately a 12% upside to Sterling Check shares, assuming they are converted into FA equity as part of the 28% stock component of the acquisition deal.
Still, the firm also cautions that if the acquisition were to fall through—a scenario they do not anticipate, but consider a risk—Sterling Check's shares could drop back to around the $12.50 level, which would represent a 27% downside from the current price.
The acquisition is yet to be finalized, and as with all deals of this nature, it carries inherent risks until completion. Stifel's revised price target and rating reflect a cautious optimism, acknowledging the potential for growth while also considering the possible risks involved with the transaction.
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