Holley's Bright Future: JP Morgan Analyst Predicts Topline Upside And Margin Growth For 2023/2024

J.P. Morgan analyst Christian Carlino upgraded the rating on Holley Inc. HLLY from Neutral to Overweight, with a price target of $7.

The analyst sees topline upside for Holley in 2023/2024, given conservative guidance, the Sniper 2.0 release, and potential upside from reducing past dues.

Carlino also predicts margin upside as HLLY recaptures elevated manufacturing & distribution costs, with mix & pricing tailwinds persisting into 2024, considerable cost savings, and operating leverage.

The analyst applauds Holley's rationalized cost structure that puts a 40% gross margin/20% EBITDA margin on the table for 2024.

Carlino raised 2H forecasts (2Q unchanged), resulting in $669 million in sales, a 39.3% gross margin, and $125 million EBITDA (18.7% margin) in 2023.

The analyst raised 2024 estimates to $710 million in sales, a 40.2% gross margin, and $139 million EBITDA (19.6% margin).

The analyst introduced 2025 estimates of $749 million in sales, 40.5% gross margin, and $148 million EBITDA (19.8% margin).

While there are overhangs weighing on the stock (lingering skepticism from 2022, leverage, and illiquidity), the analyst sees a path to upward revisions and modest balance sheet deleveraging, which should counteract the overhangs and potentially re-rate the stock higher.

Price Action: HLLY shares are trading higher by 20.9% to $5.32 on the last check Wednesday.

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