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On Friday, DA Davidson made a significant adjustment to its outlook on GMS Inc . (NYSE: NYSE:GMS), reducing the firm’s price target from $94.00 to $80.00. Despite this change, the analyst maintained a Neutral rating on the stock. The revision follows the release of GMS’s fiscal third-quarter 2025 results, which prompted the analyst to substantially cut estimates. According to InvestingPro data, GMS currently trades at $72.93, down 14% year-to-date, with three analysts recently revising their earnings estimates downward.
The analyst cited several challenges contributing to the decision, including volatile performance and pressures in multiple areas. The report acknowledged that while the stock might find increased downside support at approximately 9 times the forecasted free cash flow (FCF) for fiscal 2025 and 2026, the unpredictability of forecasting under current conditions remains a concern. InvestingPro analysis indicates the stock is currently undervalued, with a "GOOD" overall Financial Health score, suggesting potential resilience despite current market pressures.
The report also highlighted that it might take time for the market to adjust to the company’s decreased margins, with the lowest EBITDA margin since fiscal 2018 now being projected. The analysis suggests that the next one to two quarters could represent a low point for the company.
Despite the lowered price target and the concerns outlined, DA Davidson’s stance on GMS Inc. remains unchanged at Neutral. The analyst’s comments reflect a cautious outlook, emphasizing the need for time to assess the impact of the margin retrenchment and the company’s ability to navigate through the current market challenges.
In other recent news, GMS Inc. reported its Q3 2025 earnings, which showed a mixed performance. The company exceeded earnings per share (EPS) expectations, reporting $1.70 against a forecast of $1.61, marking a 5.6% increase. However, GMS’s revenue fell short, reaching $1.3 billion compared to the anticipated $1.31 billion, reflecting a $10 million shortfall. Despite the positive EPS, the revenue miss highlights ongoing challenges in the construction sector, impacting overall financial performance.
Analyst firms have noted these developments, and the market reaction was significant, with GMS’s stock experiencing a notable decline post-earnings announcement. The company is also taking steps to address the tough market conditions, including cost reduction initiatives aimed at improving operational efficiency. In terms of future outlook, GMS anticipates a decline in Q4 net sales, expecting them to fall in the high single digits, with organic sales projected to decrease in the low double digits. The company remains optimistic about a market recovery in the coming quarters, with a long-term EBITDA margin target of over 10%.
GMS’s management expressed confidence in their ability to adapt to changing market demands, with CEO John Turner stating the company’s readiness to pivot as demand levels fluctuate. The company is also focusing on strategic areas for potential mergers and acquisitions, particularly in insulation and fasteners. These recent developments reflect GMS’s strategic efforts to navigate the challenging market landscape while positioning itself for future growth opportunities.
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