Alight, Inc. (ALIT) is a cloud-based integrated digital human capital and business solutions provider. A subsidiary of The Blackstone Group, Inc. (BX), ALIT went public through a SPAC deal with institutional investor Bill Foley-backed blank check company Foley Trasimene Acquisition Corp. on July 6.
The Lincolnshire, Ill.-based publicly traded company had a pro forma enterprise value of $7.30 billion. Since its stock market debut, it has gained 30.9% in price to close yesterday’s trading session at $11.82.
Renowned investor Bill Foley became the Chairman of the newly formed company, resulting in optimistic analyst and retail investor sentiment. Foley stated in a CNBC interview that the “highly scalable company with real revenue and real EBITDA” has tremendous growth potential.
Here’s what could shape ALIT’s performance in the near term:
In its S-1 filing with the SEC, ALIT stated that it faces substantial systematic and internal risks that might adversely impact its business operations and cash flows. Some of the most significant risks include competing with industry giants with international market reach, disruptive technical capabilities, and cybercrime-related threats.
Also, ALIT’s substantial indebtedness could hinder the company’s growth prospects. ALIT repaid $1.79 billion of debt during its merger with FTAC, reducing its debt by more than 40% to $2.35 billion. However, the company’s negative trailing-12-month cash flows raise concerns regarding its ability to repay outstanding debt.
On July 14, ALIT signed a definitive agreement to acquire clinical advocacy and expert medical opinion company ConsumerMedical. Expected to close in the current quarter, this acquisition should consolidate ALIT’s footprint in the digital healthcare space over the long term. Also in July, the company entered an agreement to acquire Aon Retiree Health Exchange business from Aon plc. The transaction is expected to close in the fourth quarter.
However, these acquisitions are expected to impact ALIT’s balance sheet adversely in the near term. Though the details of these transactions are not yet disclosed, they might negatively impact ALIT’s cash reserves (in case of an all-cash transaction) or debt burden (in case of a leveraged buyout).
Voya Financial Inc. (VOYA) is said to be exploring the potential acquisition of ALIT, according to a Bloomberg article. While no official news regarding this is available, insiders have hinted toward this deal just a month after ALIT made its public debut. If approved, this acquisition could lead to the potential delisting of ALIT from NYSE or lower the shareholder returns for existing stakeholders.
ALIT’s revenues increased 3.9% year-over-year to $672 million in the fiscal second quarter ended June 30. Its operating income came in at $56 million, up 211.1% from the same period last year. However, its net loss and loss per share stood at $4 million and $33.5, respectively. This can be attributed to a $61 million in interest expense incurred on senior notes issued in the second half of 2020.
Its comprehensive income increased substantially from its negative year-ago value to $6 million. However, this gain can be attributed to a $6 million gain in a change in fair value of derivatives and a $4 million gain from currency exchange rate movements. Cash from operating activities declined 44.1% from the prior-year quarter to $19 million, while its cash and cash equivalents balance fell 9.1% in the first six months of 2021 to $460 million.
Unfavorable POWR Ratings
ALIT has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
ALIT has a D grade for Quality and C for Sentiment. Its negative 14.72% ROA justifies the Quality grade. In addition, although ALIT’s revenue is expected to increase 4.5% year-over-year next year, its EPS is expected to decline at a rate of 19.7% over the next five years. Such mixed estimates justify the Sentiment grade.
Of the 146 stocks in the D-rated Software – Application industry, ALIT is ranked #104.
Beyond what we’ve stated above, we have rated ALIT for Growth, Momentum, Stability, and Value. Get all ALIT ratings here.
As an emerging company led by industry leaders and institutional investors, ALIT has promising growth prospects, provided it can address its operational inefficiencies and capital structure. However, while Chairman Bill Foley has stated his plans to reduce its debt in the coming months, the company’s planned acquisitions might hinder such goals. Thus, we think the stock is best avoided now.
How Does Alight (ALIT) Stack Up Against its Peers?
While ALIT has a D (Sell) rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Commvault Systems, Inc. (CVLT) and Open Text Corporation (OTEX) which have an A (Strong Buy) rating.
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ALIT shares were trading at $11.82 per share on Friday afternoon, down $0.00 (0.00%). Year-to-date, ALIT has gained 30.90%, versus a 21.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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