Citi cuts Five Below stock target to $80; maintains neutral stance

On Friday, Citi analyst Paul Lejuez adjusted the price target for Five Below (NASDAQ:FIVE) stock, bringing it down to $80 from the previous $125, while keeping a Neutral rating on the company’s shares. According to InvestingPro data, the stock has experienced significant pressure, declining over 64% in the past year, with the current price at $72.25. The stock’s RSI indicates oversold conditions, suggesting potential value for contrarian investors. Lejuez’s assessment followed Adobe (NASDAQ:ADBE)’s first-quarter results, which he described as contentious due to a slight earnings beat overshadowed by changes in disclosures that obscure the momentum of the core Creative Cloud. Additionally, for the first time in years, cRPO/RPO bookings saw a decline, and the monetization of GenAI is still in its early stages.

Lejuez noted that despite surpassing some financial metrics, Adobe did not alter its fiscal year 2025 outlook, and its second-quarter guidance fell short by one percentage point in Digital Experience subscription growth. With Five Below’s next earnings report due on March 19, investors using InvestingPro can access comprehensive analysis including 8 additional ProTips and detailed financial metrics to make informed decisions. The analyst suggested that the stock’s negative performance might indicate wavering confidence in the company’s near-term growth prospects, which are expected to be driven by AI and enterprise cross-cloud upsell opportunities, especially in a more volatile macroeconomic environment.

Citi’s decision to maintain a Neutral rating on Five Below comes amid concerns about Adobe’s Creative Cloud franchise, which is experiencing slower growth and heightened competition. Lejuez’s revised target price for Adobe now stands at $430, reduced from $490, based on slightly lower estimates. The new target implies a 19 times forward fiscal year 2025 enterprise value to free cash flow (EV/FCF) multiple.

The price target and rating adjustments reflect an analysis of the company’s recent performance and the broader market conditions. It is important for investors to note these changes as they assess the value and potential of their investments in Five Below. The reduced target price by Citi serves as an updated benchmark for the company’s stock value moving forward. Despite recent challenges, Five Below maintains a "Fair" overall financial health score according to InvestingPro analysis, with a P/E ratio of 14.84x and positive earnings forecasts for the current fiscal year.

In other recent news, Five Below reported an 8.7% increase in net sales during the holiday period, reaching $1.19 billion, though comparable store sales decreased by 3.2%. The company maintained its earnings per share outlook, projecting diluted income per share between $3.15 and $3.33, with adjusted figures ranging from $3.23 to $3.41. Analysts from Truist Securities and KeyBanc have retained their Hold and Sector Weight ratings, respectively, highlighting concerns about sales trends and competitive pressures. Five Below’s management anticipates fourth-quarter sales to be at the upper end of their guidance range, despite challenges such as a shorter holiday season and increased competition. Deutsche Bank (ETR:DBKGn) analyst Krisztina Katai adjusted the price target for Five Below to $106 while maintaining a Hold rating, noting strong sell-through during the holiday period. The company’s strategic focus includes enhancing product offerings and improving the in-store experience under new CEO Winnie Park. Five Below’s full fiscal year 2024 guidance remains unchanged, with net sales projected between $3.84 billion and $3.87 billion. The company continues to face challenges, including global supply chain disruptions and consumer preference shifts, as it navigates a complex retail environment.

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