Stifel Downgrades Floor & Decor After 14% Year-To-Date Run

Floor & Decor Holdings Inc FND shares have added about 14 percent this year, making one analyst uneasy about investing further in the equity. The downgrade comes despite the forecasting-beating fourth-quarter results the company reported March 1.

The Analyst

Stifel analyst John Baugh downgraded shares of Floor & Décor from Buy to Hold and lifted the price target from $51 to $60.

The Thesis

The run-up in Floor & Decor stock in 2018 already reflects the company's recent results and growth projections, Baugh said in a Tuesday note. (See the analyst's track record here.)

The results will be positive over the next few years, but are not strong enough to justify a Buy at this time, Baugh said. 

In order to justify a 15-percent annual return for an investor at today's stock price, Floor & Decor would need to earn $4 per share with a PE ratio of about 30x in 2023, according to Stifel. 

Floor & Decor is likely to grow revenue at a CAGR of 21 percent through 2023, Baugh said. 

Stifel is less confident about the margin the company can achieve over this timeframe, especially as start-up and opening costs continue to grow. A 12-percent annual return is likely, the analyst said. 

After 16.5-percent comp growth in 2017, Stifel projects 10.5-percent comp growth in 2018 and 9-percent comp growth in 2019. 

Stifel forecast risks from rising interest rates that could hurt housing and consumer spending.

Stifel raised its 2018 earnings per share estimate from 97 cents to $1 to account for additional revenue from new stores. The sell-side firm hiked its 2019 revenues estimate, although the upside is unlikely to flow through to the bottom line due to higher pre-opening costs, Baugh said. 

The Price Action

Floor & Decor shares were down 2.8 percent at $53.98 at the time of publication Wednesday. 

Related Links:

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

What To Do With Homebuilders Stocks