Cubic Corp.'s Gridsmart Acquisition Makes Sense, Says Bullish Raymond James

Cubic Corporation (NYSE: CUB) has announced plans to acquire Gridsmart, an urban congestion sensor and algorithm company, for $87 million.

The acquisition fits well into Cubic’s NextCity strategy, and margin expectations could “prove conservative” once Gridsmart is  integrated with Cubic’s financial system, according to Raymond James.

The Analyst

Analyst Brian Gesuale maintains an Outperform rating on Cubic Corp.

The Thesis

The planned Gridsmart acquisition is a good addition to Cubic’s NextCity portfolio, as it brings well-designed hardware, proprietary algorithms and several smart city functionalities, Gesuale said in a Wednesday note.

The acquisition also brings technology that could leverage machine learning and other technologies for vehicle-to-infrastructure applications as autonomous driving functions are adopted in the auto industry, the analyst said. 

The deal, which is immediately cash accretive and margin accretive, explains why Cubic executed a capital raise late last year that exerted pressure on its share price, Gesuale said. 

Cubic appears to be positioning itself to target the IOT market for autos and infrastructure over the next two to three years “while leveraging its fare collection dominance to become more competitive in toll collection and other urban congestion initiatives,” according to Raymond James. 

Price Action

Cubic shares were down 0.83 percent at $52.65 at the time of publication Thursday. 

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