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Wells Fargo Turns Bullish On Floor & Decor After Meeting With Retailer

Wells Fargo Turns Bullish On Floor & Decor After Meeting With Retailer
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Floor & Decor Holdings Inc (NYSE: FND) disappointed investors with its second quarter-results, but the stock's corresponding decline creates a compelling opportunity to buy one of the best growth stories in the retail sector, according to Wells Fargo.

The Analyst

Wells Fargo's Zachary Fadem upgraded Floor & Decor from Market Perform to Outperform with a price target lifted from $42 to $45.

The Thesis

Wells Fargo's conversations with Floor & Decor support a bullish stance for four reasons, Fadem said in the upgrade note. (See the analyst's track record here.) 

They are: 

  • The retailer remains well-positioned in the floor and tiling group, especially on the professional side of the business.
  • Mitigating factors against potential tariffs are not appreciated by investors.
  • The competitive threat from luxury vinyl tile flooring is "overblown and likely transitory."
  • Long-term growth initiatives are underappreciated.

Floor & Decor's near-term setup is "tricky," as management needs to address investor concerns after a disappointing earnings report highlighted by signs of decelerating comps and margins, the analyst said. Visibility should improve into fiscal 2019, when comps could rise by more than 8 percent from multiple tailwinds, Fadem said:

  • New store openings.
  • Lower cannibalization headwinds.
  • Easier year-over-year comparisons.
  • An expansion of loyalty programs which is showing signs of success in three test markets.
  • The company is still young and fast-growing.

Floor & Decor's stock is trading at a 10-percent discount to high-growth peers on a 2019 EV/EBITDA multiple and the firm's $45 price target is based on a 20 times multiple on EV/EBITDA.

Price Action

Floor & Decor Holdings shares were down 2.13 percent at $38.09 at the time of publication Friday. 

Related Links:

Piper Jaffray Reverses Upgrade Of Floor & Decor

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

Latest Ratings for FND

Jan 2019UBSUpgradesNeutralBuy
Dec 2018CitigroupMaintainsBuyBuy
Nov 2018Morgan StanleyInitiates Coverage OnEqual-Weight

View More Analyst Ratings for FND
View the Latest Analyst Ratings

Posted-In: Flooring retail Wells Fargo Zachary FademAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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