Why Everyone's Talking About Party City Today

Analysts initiated coverage on Party City Holdco Inc PRTY Tuesday following the expiration of the quiet period.

The Street was largely bullish on the designer, manufacturer and distributor of decorated party supplies. Amid the new coverage, the stock traded at $21.86, up 0.28 percent.

Bank of America analyst Denise Chai noted the company had “grown through acquisition and operates almost 700 company owned superstores and 300 temporary Halloween City locations. Through its wholesale business, PRTY distributes to over 100 countries, putting it in over 40,000 retail outlets worldwide.”

Below are highlights from analyst notes along with ratings and price targets.

Bank of America - Buy, $26 price target

“PC’s key differentiator and competitive advantage is its vertically integrated business model, which enables it to capture the manufacturing, distribution and retail margin (ie, “share of shelf”) on the majority of its products, which gives it best-in-class margins. It also has a superior assortment, with 10-20x as many SKUs as mass or dollar stores, and faces limited online competition.”

Credit Suisse - Outperform, $26 price target

“Party City is a unique investment story within retail, offering investors many ways to win through a diverse set of growth drivers across its vertically integrated model. We see an outlook that includes high-single digit top line growth and mid-teens or better EPS growth, which stacks up well within our group. While much progress has been made under this strong management team, we see multiple areas of further improvement, supporting another 20% of stock price appreciation over twelve months through EPS and valuation upside.”

Goldman Sachs - Neutral, $23 price target

“The bottom line is that PRTY is a unique vertically integrated retailer with a competitive moat, consistent fundamentals, and a tangible margin expansion story. At the same time, PRTY plans to de-lever the balance sheet, amplifying EPS growth. While we have a favorable fundamental view, these dynamics appear to be reflected in the stock at 10.1X FY16E EV/EBITDA, a premium to peers. With only modest upside to our price target we initiate at Neutral and await a better entry point to become more constructive.”

Morgan Stanley - Overweight, $25 price target

“We see three primary sources of earnings upside, which our bull case scenario incorporates. 1) Distribution and manufacturing acquisitions. A 1% increase in self-distributed and self-manufactured products widens EBIT margins by ~20-30 bps. 2) Alternative market expansion. We think PRTY can broaden its reach in International markets (20% of total sales) and B2B (small percentage). 3) Debt paydown. Deleveraging its balance sheet (6.5x debt/EBITDA in 2014) should transfer value to equity from debt. PRTY also can refinance $280 million of 8.875% notes, which could provide ~$10 million of interest savings, or $0.06 of incremental EPS.”

Deutsche Bank - Buy, $25 price target

“Based on our sales and margin driver assumptions, we calculate an EPS growth rate of 15 percent, above the peer average of 13 – 14 percent. Our PT is based on a 20x P/E multiple to our fiscal year 2016 estimate, equating to a P/E to growth rate of 135 percent. This translates to an EV/EBITDA valuation of 10.5x. Peers trade at 18x 2016, equating to an average PEG of 115 – 150 percent and an average EV/EBITDA of 10x. Main downside risks include exposure to commodity prices, competition from other retail channels, some economic sensitivity, and a reliance on a strong Halloween selling season.”