Ollie's Bargain Outlets: The Sell-Side Debates Whether To Buy The Dip

Ollie's Bargain Outlet Holdings Inc OLLI reported a top-and-bottom line beat in its fourth-quarter results Wednesday, but management's revenue guidance for the full fiscal year initially sent shares lower by more than 3 percent. The selling momentum carried over into Thursday's trading session as Wall Street debates if investors should buy the dip. 

The Analysts

• The Buckingham Research Group's Kelly Crago maintains a Neutral rating on Ollie's Bargain's stock with an unchanged $55 price target.
• KeyBanc Capital Markets' Bradley Thomas maintains an Overweight rating on Ollie's Bargain's stock with a price target lifted from $60 to $65.
• Bank of America Merrill Lynch's Elizabeth Suzuki downgraded Ollie's Bargain's stock rating from Buy to Neutral with a price target lowered from $65 to $63.

Buckingham: Success Priced In

Ollie's reported a "solid" Q4which highlighted by a comp beat of 4.4 percent versus expectations of 3.2 percent, Buckingham's Crago said in a note. The comp beat was broad-based and coupled with an increase in basket size, which more than offset a slight reduction in transactions, the analyst said. 

Ollie's should be able to beat its own long-term guidance of mid-to-high-teens EPS growth based on 1 to 2 percent comps, Crago said. But these expectations are already factored into the stock's "stretched" valuation at a 2018E P/E multiple of 36x, which is "well above" the group average of 23x, she said. 

KeyBanc: Still A Favorite Idea

Ollie's remains one of KeyBanc's "favorite ideas" and should be considered a core holding for investors with small-cap stocks, KeyBanc's Thomas said in a note. The retailer is "one of the more compelling" growth stories within the sector, given a large runway ahead toward its goal of 950 domestic stores, the analyst said. 

The Q4 report was strong and highlighted by 30-percent earnings per share growth from a year ago and 4.4-percent comp growth, Thomas said. Ollie's also confirmed that quarter-to-date trends for the first quarter are encouraging and new stores continue to perform well, he said. 

In KeyBanc's view, the long-term Ollie's story remains unchanged. The company should be able to generate annual earnings growth in the high teens to 20 percent on mid-to-high-teens top-line growth and 1-to-2-percent annual comp growth, Thomas said. Within nine years, the company should be able to achieve an EPS of nearly $6.90, which at a 16x multiple on the stock would warrant a valuation of $110, or around 80 percent upside from current levels, the analyst said. 

Bank of America: Valuation Concerns

Ollie's stock has gained around 80 percent over the past year, which implies it is now "fairly valued" at 36x 2018E EPS, BofA's Suzuki said in a research report. The stock is trading one standard deviation above its historical P/E, while comps have showed signs of slowing since the first quarter of 2015.

Price Action

Ollie's Bargain Outlet shares were down 1.6 percent Thursday afternoon. 

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