Stifel Calls Dave & Buster's A Compelling Buyout Target

Dave & Buster’s Entertainment Inc PLAY has received a new initiation of coverage.

The Analyst

Stifel analyst Chris O’Cull initiated coverage on Dave & Buster's with a Hold rating and a $45 price target.

The Thesis

Stifel says Dave & Buster's established market position, unit growth prospects, and significant cash flows represent favorable investment attributes. However, O’Cull says the company’s high store-level margin and new unit returns have not gone unnoticed and have sparked new competition in the “eatertainment” segment in the past few years.

The competition landscape is quickly intensifying with a number of emerging eatertainment concepts aggressively expanding, weighing on same-restaurant sales and EBIT since 2017, he said.

“Our due diligence suggests the competitive headwind is unlikely to abate anytime soon and could be difficult to combat unless the company revitalizes many of its existing venues,” O’Cull wrote in a note.

O’Cull also said without a game-changing plan to address lackluster same-restaurant sales performance, he struggles to find a turnaround catalyst at this time.

The analyst believes there are factors that likely make Dave & Buster's a compelling leveraged buyout target and "while we are unaware of any potential transactions, this optionality could support the current valuation."

Price Action

Dave & Buster’s shares are trading around $40.75.

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