TD increases ZZZ target to $22.00 (BUY)This morning TD increased its ZZZ target price to $22 with a buy rating. Research note copied below...
Impact: POSITIVE
Q2/20 Preview: Admittedly, the Q2/20 financial results are challenging to forecast, with Sleep's store base closed for approximately one-half of the quarter, in addition to the staggered pace of reopenings in the latter half. That stated, we are raising our Q2/20 and 2020 forecasts this morning, as we believe that the industry in general is benefiting from a heightened allocation of consumer dollars toward family/home due to the pandemic and that Sleep is ideally positioned to capitalize on this trend. Although we place limited weight on the Q2/20 results for valuation purposes and expect a material y/y decline, we believe that the outlook for Sleep is much improved since reporting its Q1/20 results in early-May.
Market Positioning: We maintain our view that Sleep is positioned to gain market share during the pandemic, aided to an extent by its new eCommerce platform that management indicated has seen exponential growth during the period of its store closures. As consumers look to minimize shopping time/trips, we believe that Sleep's full product offering eCommerce channel, aided by the implementation of its "Sleep Expert" chat program, should prove a competitive advantage in driving traffic to Sleep both online and to its brick-and-mortar footprint, that Sleep has continued to expand subsequent to the quarter.
Investment Thesis: We are increasingly encouraged by the financial outlook for Sleep as a function of positive industry consumer trends, its critical mass, and its eCommerce capabilities, that in aggregate we believe should heighten its industry-leading position. Although we maintain a degree of caution due to the unknown direction of the pandemic, we are now looking closer at the potential for a dividend reintroduction in 2021, as opposed to our previous focus on its available liquidity. This improved outlook provides us comfort in increasing our financial forecasts, applied multiple, and in turn our target price.
TD Investment Conclusion We are maintaining our BUY rating, with a revised target price of $22.00.