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Bank of America Merrill Lynch's bullish case for Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) has come to an end after the company reported fourth-quarter results.
The Analyst
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BofA's Elizabeth Suzuki downgraded Ollie's Bargain Outlet's stock rating from Buy to Neutral with a price target lowered from $65 to $63.
The Thesis
Ollie's, a discount chain retailer selling a wide range of closeout merchandise, has seen its stock gain around 80 percent over the past year and is now trading at a fair valuation, Suzuki said in the downgrade note. (See the analyst's track record here.)
The stock is trading at 30x on the firm's 2019 EPS estimate, which is one standard deviation above its historical P/E and reasonable for company growing its footprint at a double-digit pace. Ollie's comps have slowed in recent years, and the stock "looks expensive" compared to its closest peer, At Home Group Inc (NYSE:HOME), which trades at only 22x, Suzuki said.
Despite the downgrade, bulls still have a few reasons to be optimistic, the analyst said:
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- The company can procure more and better inventory as it grows.
- Management can take advantage of inexpensive second-use retail space to grow faster.
- Ollie can become the "retailer of choice" for certain vendor partners.
Bears also have compelling concerns, Suzuki said:
- Difficulties could arise in sourcing sufficient inventory as Ollie grows.
- Rival private label offerings and other retailers present competition.
- A shift in consumer preference to shop for discounted products online.
Price Action
Ollie's Bargain Outlet shares were plunging nearly 7 percent at the time of publication Thursday.
Ollie's Bargain Outlet Excels In Q3, But Is The Growth Story Already Priced In?
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Photo by Dwight Burdette/Wikimedia.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.