UPDATE: Bank of America Downgrades The Container Store Group on Lack of Clear Positive Catalyst
In a report published Wednesday, Bank of America Merrill Lynch analyst Denise Chai downgraded The Container Store Group (NYSE: TCS) to Neutral from Buy, with a $46.00 price target.
According to the report, the downgrade was due to the view that the stock lacks clear positive catalyst after its 154 percent appreciation since IPO on October 31, 2013, despite the company's admirable fundamentals and square footage growth potential.
“More so than perhaps any other Hardline retailer we cover, store traffic is key for TCS, and traffic unexpectedly declined in 3Q by 1.1% (approximately -1% 2 year rate vs. average of +0.5% in prior 2 quarters), although ticket was much better than expected (+5.8%),” the report noted. “Comp guidance for 4Q is ~3.1% marks a fairly significant slowdown in the two-year stack. Lastly, as the lock up expiry in late April approaches, we believe investors will focus on this overhang. With that said, overall fundamentals are still strong despite somewhat weak traffic, and we believe TCS remains one of the most compelling growth stories in Hardline retail.”
Upside risks to their price objective and investment view include higher than expected increase in traffic, faster than expected store unite growth, faster than estimated debt pay down and stronger than expected benefit from housing momentum. Downside risks include continued macro headwinds in Europe, volatility in Swedish Krona, difficulty with store real estate/ site selection and further slowdown in traffic trends.
TCS closed Tuesday at $45.79 with shares trading up at 6.54 percent.
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