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Awaiting A Better Entry Point Around $33, BMO Initiates Floor & Decor At Market Perform

Awaiting A Better Entry Point Around $33, BMO Initiates Floor & Decor At Market Perform
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BMO Capital Markets initiated coverage of Floor & Decor Holdings, Inc. (NYSE: FND) at Market Perform, as it believes its valuation reflects strong growth prospects. Therefore, the firm said it is awaiting a potential better entry point, probably around $33.

The firm has a $41 price target on the shares of the company.

Analyst Wayne Hood believes a pullback toward the entry point he envisages could emerge from a group or market correction or hurricane trade unwinding. The analyst thinks an investor sentiment shift, lumpy quarterly earnings per share growth due to unbalanced store opening, a secondary offering or a possible disruption caused by transitioning distribution centers into 2018 could also drag the stock.


That said, BMO Capital Markets sees Floor & Decor as operating a proven, differentiated business model, grounded by a seasoned leadership team and board. This, according to the firm, has helped build a solid foundation for strong same sales growth, which is estimated at 11.4 percent in 2017.

"Our research supports target of 400 stores U.S. stores and 20% annual store growth, leaving us seeing a 25% five-year EPS growth rate," the firm said. The growth is above the best-in-class average of 14.6 percent.

The firm feels a premium valuation for Floor & Décor is justified due to above-average same-store sales growth, visibility into 20 percent unit growth, more favorable timing of new site potential, emerging lower secondary market rent rates, upside to EBIT margin rate, improvement in cash flow generation, balance sheet deleverage, least relative e-commerce threat and the seasoned leadership.

See also: Physical Retail Isn't Dying: Here's How To Play It

Latest Ratings for FND

Nov 2018Morgan StanleyInitiates Coverage OnEqual-Weight
Nov 2018Bank of AmericaUpgradesNeutralBuy
Nov 2018JP MorganMaintainsNeutralNeutral

View More Analyst Ratings for FND
View the Latest Analyst Ratings

Posted-In: BMO Capital Markets Wayne HoodAnalyst Color Initiation Analyst Ratings


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