RE:New Raymond James Analyst Coverage & $32 targetHere's a more detailed report. GLTA
While he sees a “strong growth profile,” Raymond James analyst Michael Glen initiated coverage of Aritzia Inc. with a “market perform” recommendation, believing the Street’s expectations for the Vancouver-based clothing retailer are “elevated.”
“Aritzia has posted some very impressive growth since its IPO in late 2016, and the company expects strong growth to continue with medium-term (4-year) growth targets for F2027 including net revenue of $3.5-3.8-billion (12-15-per-cent CAGR [compound annual growth rate] from F2023 sales of $2.2-billion), with an 19-per-cent adjusted EBITDA margin (which compares versus our 8.7 per cent margin in F2024),” he said. “We view these targets as attainable (aggressive, but attainable).
“That said, we must acknowledge that current investor focus for the name appears to be very near-term oriented. In that regard, despite what we would describe as low expectations for the stock, we would note that Aritzia will continue to face tough comparables through 2HFY24 on the back of two very high growth years seen in FY22 and FY23, which saw boost from post-pandemic spending. Additionally, we believe that warmer-weather conditions that persisted through the very important F3Q will represent a headwind to fall sales. With that, our F2024 adjusted EBITDA forecast is $200-million which stacks versus consensus of $216.6-million with full-year adjusted EPS forecast is $0.89 which stacks against consensus of $0.91.”
Mr. Glen views Aritzia as a “reasonably valued” stock, pointing to its historical valuation, growth targets, and same-store sales growth. He also sees it sitting “very much at the bottom of the list from a price performance perspective, essentially giving us a strong indication that expectations are quite low.”
“That said, despite some favourable characteristics to consider with respect to valuation and low investor expectations, we do see risk to current consensus estimates, a factor which we believe will present a risk in the short-term,” he said.
Emphasizing the release of its third-quarter 2024 financial results in early January will be “an important data point towards setting a base level for forecasts,” Mr. Glen set a target of $32 per share, matching the average on the Street.
“Given the size of the company and growth profile, and in addition to the company’s presence and strategy in both the U.S. and Canada, we see the company with an expansive list of potential peers,” he concluded. “As such, these peers have been categorized into Canadian discretionary stocks, premium apparel and accessories, large apparel brands, and active apparel and footwear brands. Overall, when we look at the company’s 14.7 times P/E multiple and 7.0 times our FY2025E EBITDA, we believe this represents a reasonable valuation given current consumer sentiment, macro-environment, and growth stage as the company expands its operations geographically and spends to streamline its costs.”