ARC Group: Imperial Capital Slashes Price Target, But Upside's Still There

• The share price of ARC Group WorldWide, Inc. ARCW has plummeted 80.62 percent year-to-date.
• Imperial Capital’s Saliq Khan downgraded the company from Outperform to In-Line, while reducing the price target from $9 to $5.
• Although the stock is expected to perform in-line with its advanced manufacturing peers, Khan expects near-term upside to be limited despite revenue growth upside.

During its recent quarterly earnings announcement, management mentioned that sales were expected to weaken in 1Q16. Khan believes that this led to a sharp selloff in the stock.

Khan expects the company to continue to experience “revenue fluctuation” over the next couple of years, which would lead to persisting volatility in the share price.

ARC Group reported a 22 percent year-on-year increase in its 4Q15 revenue, which was marginally below the estimate. The FY15 revenue grew 36 percent year-on-year.

The EBITDA for Q4 was in-line with the estimates and the consensus, although the EPS was lower than expected. Sales growth during the quarter was driven by acquisitions.
However, the Imperial Capital report mentioned that the management appeared “encouraged by growth opportunities within the 3DMT segment,” which grew 32 percent year-on-year during the quarter

“Management now expects soft top-line sales growth during 1Q16, largely due to the weakness in the euro, low steel and scrap prices, and delayed product launches by certain customers. However, these appear to be temporary headwinds and not indicative of long-term trends,” Khan added.

The EPS estimates for 2016 and 2017 were reduced from $0.05 to $0.03 and from $0.13 to $0.05, respectively.