The completion of the
Arm Holdings
stock offering last week opens a new era in the long and complicated history of its primary owner, Japan’s
SoftBank Group.
And the way at least one analyst sees it, the deal sets the stage for substantial gains in SoftBank shares.
SoftBank (ticker: SFTBY acquired Arm (ARM) for $32 billion in 2016, taking it public last week at $51 a share. The stock surged as high as $69 before settling back to leave Arm with a market capitalization of about $60 billion. Even after the offering, SoftBank holds about 90% of Arm’s outstanding shares, valued at about $54 billion.
NewStreet Research analyst Pierre Ferragu picked up coverage of Arm just before the IPO was completed, assigning the stock a Buy rating with a target of $59 for the price. On Monday, he issued a report that laid out a bullish case for owning shares of the Japanese investment firm, which he also covers.
Ferragu estimates that Arm accounts for about 30% of the overall SoftBank portfolio and notes that about 74% of SoftBank’s total assets are now made up of public-company holdings. The company also holds stakes in
Alibaba
(BABA);
SoftBankCorp.
, a mobile carrier;
T-Mobile
(TMUS), and
Deutsche Telekom
(DT), with additional publicly traded stocks held via the company’s Vision Fund venture-capital portfolio.
Ferragu calculates that SoftBank has about $32 billion in cash following both the purchase of a quarter of Arm’s shares from the Vision fund for $16 billion and the offsetting proceeds from the Arm IPO. And he estimates that the company has capacity to raise more than $21 billion in cash from lenders.
Ferragu’s view is that the company has room to both conduct a significant stock buyback program and to ramp up its pace of investments, with a particular focus on generative artificial intelligence companies. He contends that given the company trades at about a 45% discount to its underlying net asset value, a $10 billion buyback “would be very efficient,” and potentially drive the stock up by about 24%, he estimates.
On Monday, Arm shares were down 9.2% to $55.16. SoftBank shares were off 1.3% to $22.
Write to Eric J. Savitz at [email protected]
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