Dave & Buster's Present Challenges Shouldn't Obscure Long-Term Opportunity

Analysts at BMO Capital Markets think investors should take advantage of Dave & Buster's Entertainment, Inc. PLAY's near-term weakness and concerns given the company's long-term potential.

BMO's Andrew Strelzik maintains an Outperform rating on Dave & Buster's stock with a price target lowered from $72 to $70 in spite of the company's "challenging" top-line but expected second-quarter earnings report.

Beyond the headline numbers, there are five reasons why investors should remain bullish.

• Dave & Buster's was one of the three casual dining companies to report same-store sales growth.
• The company's underlying margins (excluding litigation expenses) exceeded consensus estimates which demonstrates the "unique and durable business model."
• The 15 percent decline in Dave & Buster's stock over the past few weeks may be unwarranted since the company's core EBITDA likely declined just $1 to $2 million.
• The company's unit growth is still at the top of its peer group and the ample availability of real estate supports ongoing growth ahead.
• Dave & Buster's balance sheet flexibility and strong cash generation gives management plenty of opportunity for accretive actions, including new unit developments along with an increase in share repurchases.

"Recognizing near-term concerns, we believe PLAY remains one of the best long-term growth stories in our coverage and we would accumulate shares at these discounted levels," the analyst stated.

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