Market Overview

Floor And Decor Fairly Valued After 20% Run, BofA Says In Downgrade

Floor And Decor Fairly Valued After 20% Run, BofA Says In Downgrade

Floor & Decor Holdings Inc (NYSE: FND) shares have gained more than 20 percent in the past month, defying the broader market downturn and prompting Bank of America Merrill Lynch to revisit its position on the stock. 

The Analyst

BofA analyst Elizabeth Suzuki downgraded Floor & Decor from Buy to Neutral and raised the price target from $54 to $60.

The Thesis

The risk of sell-side downgrades is higher than the risk of upgrades, as the sell-side is at record bullishness on Floor & Decor, even though the average 12-month price target is more than 10 percent below the stock's present trading price, Suzuki said in a Wednesday note.

Longer-term risks to the company's growth trajectory stem from the following factors, the analyst said:

  • The ability to sustain a 20-percent-plus square footage growth pace and difficulty in finding qualified store managers.
  • The possibility of the home improvement cycle beginning to slow or turn.

The shares' multiple is likely to re-rate in either scenario, the analyst said.

Floor & Decor's ability to consistently beat estimates is likely to pose a near-term upside risk; the company is in the habit of providing conservative guidance, Suzuki said. 

"There are few publicly-traded retailers with double-digit comps and double-digit square footage growth like FND, which could continue to support the stock's multiple."

Floor & Decor shares have appreciated more than 160 percent since the company's April 2017 IPO and are "priced for perfection," Suzuki said. 

"While we believe that FND is a rare growth retailer within the most attractive subsector of our coverage universe, home improvement, we believe the risk-reward is now balanced."

The Price Action

Floor & Decor shares were down 3.3 percent at $53.98 at the time of publication Wednesday.

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Latest Ratings for FND

Jun 2020WedbushMaintainsOutperform
May 2020UBSMaintainsBuy
May 2020Wells FargoMaintainsOverweight

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