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Ollie's Stock No Longer A Bargain, Says Bank Of America

Ollie's Stock No Longer A Bargain, Says Bank Of America
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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

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:

  • 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. 

Related Links:

Ollie's Bargain Outlet Excels In Q3, But Is The Growth Story Already Priced In?

Not Just A Toy Story: Market Winners And Losers From The Toys 'R' Us Liquidation

Photo by Dwight Burdette/Wikimedia. 

Latest Ratings for OLLI

Jan 2019Morgan StanleyMaintainsEqual-WeightEqual-Weight
Nov 2018RBC CapitalDowngradesOutperformSector Perform
Oct 2018KeyBancMaintainsOverweightOverweight

View More Analyst Ratings for OLLI
View the Latest Analyst Ratings

Posted-In: Bank of America Discount Retailers Elizabeth Suzuki retailersAnalyst Color Analyst Ratings Best of Benzinga


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