Raymond James Tempers Bullish Stance On Core-Mark Holding

With the stock higher by more than 60 percent since the start of the quarter, expectations for outsized multiple expansion at Core-Mark Holding Company, Inc. CORE are now "less pronounced," according to Raymond James.

The Analyst

Raymond James' Benjamin Brownlow downgraded Core-Mark Holding from Strong Buy to Outperform with a price target lifted from $33 to $40.

The Thesis

Shares of Core-Mark, a marketer of fresh and broad-line supply solutions to the convenience retail industry, moved notably higher in recent months off of multiyear lows and have now brought the stock's multiple within its historic averages, Brownlow said in the downgrade note. (See his track record here.) 

Core-Mark's EPS multiple moved higher from 16 times Raymond James' estimated 2019 EPS to a 23 times multiple, the analyst said. 

The surge in the stock can be attributed to key catalysts playing out as expected, Brownlow said:

• Same-store cigarette sales that normalized to a low single-digit decline.
• Operational execution and efficiency improvements.
• Improved investor sentiment and confidence in 2018 guidance, which was reaffirmed in the second-quarter earnings report.

The stock's multiple has minimal upside to its historical average of 24 times 2019 estimated EPS, the analyst said. Nevertheless, applying a modest multiple premium of 25 times 2019 EPS estimates yields a $40 price target and implies a bullish stance on the stock is still warranted, although not to the same extent as in the past, according to Raymond James. 

Price Action

Core-Mark shares were flat at $36.96 at the close Friday and hit a new 52-week high of $37.56 during the session. 

Related Links:

Rite Aid-Walgreens Deal Resolution Produces A Winner: Core-Mark

'Amazon Acquisition Event Risk' And The Food Service Industry