CSS Industries Inc CSS, a small-cap company that designs, manufacturers, and distributes seasonal products like holiday cards and every day novelty products like journals, reported its fiscal third quarter results this week, which prompted DA Davidson to step to the sidelines.
The Analyst
D.A. Davidson's Linda Bolton Weiser downgraded CSS Industries' stock from Buy to Neutral with a price target lowered from $31.50 to $24.
The Thesis
CSS Industries reported a 6 percent decline in organic sales, which was worse than the 3 percent decline expected, Bolton Weiser said in a note. The company's poor performance can be attributed to a difficult retail condition, including de-stocking by a major mass retailer.
The earnings report calls into question prior expectations of the company showing an improvement in organic sales from negative 4.5 percent in fiscal 2017. In fact, the analyst is now revising the company's fiscal 2018 organic sales rate from negative 1 percent to flat to a deterioration of 6.4 percent.
Following CSS' disappointing earnings report, changes to the stock's valuation is now justified, the analyst wrote. Specifically, a revised $24 price target is based on a target EV-to-EBITDA multiple reduction from 7.5 times to 6.5 times.
Price Action
Shares of CSS Industries were flat Friday morning, but are down around 18 percent since the start of 2018.
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