After A Mixed Q3, Dave & Buster's Remains Top Pick At Maxim

Dave & Buster's Entertainment, Inc. PLAY reported a mixed third quarter earnings report, but contained multiple encouraging metrics to support the bullish case for owning the stock.

The Analyst

Maxim Group's Stephen Anderson maintains a Buy rating on Dave & Buster's' stock with a price target boosted from $78 to $84.

The Thesis

Dave & Buster's reported an EPS beat, but revenue of $250 million fell short of the $255.7 million the Street was expecting while a 1.3 percent comp decline was worse than the 1.1 percent the Street was modeling although at least 50 basis points of the decline are due to recent natural disasters, Anderson said in a note. Beyond the headline numbers, the company is seeing signs of success in boosting higher-margin amusement products as a percentage of overall sales.

Meanwhile, restaurant-level EBITDA margin of 25.9 percent did fall by 20 basis points from a year ago but came in better than the 25.0 percent the Street was expecting, the analyst said. Likewise, the reported operating margin of 8.0 percent exceeded the 7.0 percent the Street was expecting and solidifies management's tight cost controls, especially on labor costs.

Bottom line, as the company continues to emphasize higher-margin entertainment revenue, the stock could become a margin improvement story. Also, same-restaurant sales are expected to normalize in the next few quarters and stabilize at a 2 to 3 percent pace.

Price Action

Shares of Dave & Buster's were trading higher by more than 5 percent.

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