Grocery Outlet stock target raised to $17 by DA Davidson

On Wednesday, DA Davidson analyst Katy Hallberg increased the price target for Grocery Outlet Holding (NASDAQ:GO) shares from $15.00 to $17.00, while retaining a Neutral rating. The $1.6 billion market cap company, currently trading at a P/E ratio of 29.7, shows slight undervaluation according to InvestingPro Fair Value metrics. Hallberg noted that the first quarter of 2025 results indicated progress in the company’s execution, with a notable rebound in stock value from previous lows.

The analyst highlighted that Grocery Outlet’s improved gross margin, which stands at 30.24% for the last twelve months, was a key factor in the company’s performance, attributing it to enhanced inventory visibility following the resolution of disruptions caused by past system upgrades. The company maintains a healthy current ratio of 1.44, indicating strong short-term liquidity. Hallberg stated, "As new management starts to put their mark on the company, we think 1Q25’s results show progress in improving execution and the stock has rebounded off of lows."

Despite the positive aspects of the first quarter results, the analyst pointed out that comparable store sales (comps) were ahead of the company’s own guidance but did not meet market expectations and were below industry data. This discrepancy suggested that Grocery Outlet might be losing some market share. Hallberg added, "But comps, while ahead of guidance in 1Q25, were below what we think market expectations were, and below industry data, suggesting some share loss."

Furthermore, Hallberg mentioned that the trend of softness in performance extended into April, with a noted decrease in the number of items per basket. This observation indicates that the company may still be facing challenges despite the improvements noted in the first quarter.

Grocery Outlet’s stock movement reflects the company’s ongoing efforts to enhance performance and the impact of its recent management changes. The new price target set by DA Davidson represents an analyst’s perspective on the potential value of the company’s shares based on recent developments and observed trends.

In other recent news, Grocery Outlet Holding Corp reported strong financial results for the first quarter of 2025, surpassing earnings and revenue expectations. The company achieved earnings per share of $0.13, exceeding the forecast of $0.07, and reported revenue of $1.13 billion, slightly higher than the anticipated $1.12 billion. Despite these positive results, Grocery Outlet revised its full-year comparable store sales growth to 1-2%, citing smaller average transaction sizes and broader economic trends. Jefferies analysts maintained a Buy rating for the company, highlighting the effective strategies implemented by the new management team to address challenges such as pricing discrepancies and technological issues.

Grocery Outlet’s gross profit increased by 12.7% to $342.4 million, with a notable improvement in gross margin, which rose by 110 basis points to 30.4%. The company also reported a significant growth in adjusted EBITDA, which climbed 31.7% to $51.9 million. As part of its expansion strategy, Grocery Outlet opened 11 new stores and closed one, ending the quarter with 543 stores in 16 states. The company plans to open 33-35 net new stores in 2025.

Jefferies analysts expressed confidence in the company’s potential for improvement, noting that the turnaround narrative is still in its early stages but showing promising signs. Additionally, Grocery Outlet maintained its guidance for gross margin, EBITDA, and EPS for the full year, despite adjusting its sales growth forecast. These developments reflect the company’s ongoing efforts to enhance its market presence and operational performance amidst challenging economic conditions.

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