Analyst Turns Bullish On Floor & Décor, Projects Comp, EPS Growth Ahead

After a pullback in shares that followed Floor & Decor Holdings Inc FND's first-quarter print and a meeting with CFO Trevor Lang, Piper Jaffray is upwardly revising its stance on the retailer. 

The Analyst

Analyst Peter Keith upgraded shares of Floor & Décor from Neutral to Overweight and increased the price target from $51 to $58.

The Thesis

Floor & Décor shares are attractive relative to other growth retailers given the company's superior comp and earnings per share growth, Keith said in a Wednesday note.

The analyst highlighted the following takeaways from his meeting with CFO Lang: 

• Increased confidence in long-term competitive strengths and positioning.
• Less drag from lapping hurricane comparisons beginning in the fourth quarter. 
• A likely rebound in gross margins in 2019.
• Healthy and sustainable comp growth in 2019 and beyond courtesy of the ramping of key operating initiatives in 2019.

The retailer is comfortable with the outlook for a moderation in hard surface flooring industry growth from 9 percent over the past five years to mid-single-digit growth for the next three to four years, Keith said. 

The following initiatives should support continued strong comp growth in 2019, according to Piper Jaffray: 

• A pro loyalty program set for a launch in the second half of 2018. 
• The ramping of a new national marketing effort.
• Maturation curve benefits that should result in the bottoming of comps in Boston, Seattle and Long Island in 2019.

The Price Action

Floor & Décor shares were rallying 6.32 percent to $51.88 at the time of publication Wednesday afternoon.

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