Morgan Stanley: Time To Buy Party City (It's Worth $25/Share)

In a report published Tuesday, Morgan Stanley analysts initiated coverage of Party City Holdco, Inc. PRTY with an Overweight rating and price target of $25. The analysts believe that there could be significant upside to the company's EPS with time, as it adds to its manufacturing base. "PRTY's vertical integration, unique to the party goods category, boosts earnings from traditional retail SSS growth," the analysts said, adding, "A seasoned management team brings significant experience and relationships up and down the supply chain, energizing PRTY's integrated model." The analysts expect Party City to increase its self-manufactured and self-distributed product mix, which would drive EPS growth in the low to mid teens in the longer term. In addition, vertical integration allows the company to benefit from significant synergies from its under-optimized acquisitions. According to the Morgan Stanley report, "PRTY dominates a highly fragmented, specialty retail category with ~700 company-owned locations, but our proprietary AlphaWise survey reveals room for growth. The company has wider product breadth than its mass market competitors, to whom PRTY sells and/or distributes products through multiple manufacturing/wholesale subsidiaries." In addition, Morgan Stanley's survey indicates that the party goods segment is well protected against e-commerce, given that 92 percent of consumers prefer to get their party supplies from brick and mortar store.