Baird Upgrades SiteOne Landscape Supply, Says Concerns Appear Overdone

Shares of SiteOne Landscape Supply Inc SITE have underperformed the market over the past year. Although SiteOne Landscape Supply’s performance in the second quarter is likely to have been impacted by unfavorable weather, investor concerns appear overdone.

The Analyst

Baird’s David Manthey upgraded SiteOne Landscape Supply to Outperform, raising the price target from $64 to $77.

The Thesis

SiteOne Landscape Supply’s stock has underperformed the S&P 500 by more than 25% since Baird’s downgrade about a year ago. Despite some lingering cyclical concerns, the long-term growth story is very attractive, Manthey said in a note.

The company’s performance in the second quarter is likely to have been impacted by heavy rains in the Midwest, a region that accounts for around 20% of sales, as well as in East Texas and the Northeast. The analyst added that Street estimates seem to already reflect this and that comps could improve in June due to improving weather conditions.

Short interest has risen to around 20%, reflecting investor concerns over more structural or existential risks.

“We believe these fears are overdone, creating a cushion, even if the quarter comes in lower than expectations due to transitory issues,” Manthey wrote in the note.

He added that SiteOne Landscape Supply continues to be among the best "open-ended growth" stories in distribution. The company has recently undergone significant changes and made substantial investments to propel future growth.

Manthey believes expectations reflect too much pessimism and that the company’s “narrative will prove out” over the next three to five years.

Price Action

Shares of SiteOne Landscape Supply traded higher by 2.4% to $69 at time of publication.