Sally Beauty stock holds Buy rating with $16 target at TD Cowen

On Tuesday, TD Cowen maintained a positive outlook on Sally Beauty Holdings (NYSE:SBH), reiterating a Buy rating and a price target of $16.00. Currently trading at $11.15, InvestingPro analysis indicates the stock is undervalued, supporting the firm’s positive stance. Analysts at the firm highlighted the company’s modest valuation and guidance, which they believe offer an attractive investment opportunity. They noted that Sally Beauty’s recent performance has been bolstered by an uptick in consumer activity, particularly in the lower-end market segment.

Sally Beauty has experienced recent momentum across its Beauty Systems Group (BSG) and Sally Beauty Supply (SBS) divisions, maintaining a robust gross profit margin of 50.86%. Analysts at TD Cowen are optimistic about the company’s financial projections for fiscal year 2025, considering them to be conservative, especially in light of the anticipated tougher comparisons in the second half of the year. They suggest that the guidance accounts for potential fluctuations in consumer discretionary spending.

The stock has seen a decline of 19% since December 1, 2024, which analysts attribute to potential year-end repositioning activities, following a rally in the previous two quarters. They also see potential for an increase in the company’s multiple, which currently stands at 5.5 times forward price-to-earnings (P/E), compared to 6.7 times reported on November 15, 2024, and the five-year average of 6.4 times. InvestingPro data shows the current P/E ratio at 7.66, still indicating attractive valuation levels. Get access to more detailed valuation metrics and 8 additional ProTips with an InvestingPro subscription.

TD Cowen points to credit card sales data that indicates a positive trend for Sally Beauty, with a 2.4% year-over-year increase in the 13-week period ending December 29, 2024. This represents a sequential acceleration from a 2.0% increase in the third quarter of 2024. However, the analysts note that this data has an R-squared of 50%, suggesting that it may not fully capture the company’s sales performance.

The firm maintains its fiscal year 2025 earnings per share (EPS) estimate for Sally Beauty at $1.90, which is above the Street’s consensus of $1.84. This estimate includes a 3-cent EPS benefit from buybacks, with InvestingPro highlighting management’s aggressive share repurchase program as a key strength. This estimate is based on assumptions of a 1.2% increase in comparable store sales (compared to guidance of flat to +2.0%) and an operating margin of 8.8% (versus guidance of 8.5-9.0%). Access the comprehensive Pro Research Report for deeper insights into Sally Beauty’s financial health and growth prospects.

In other recent news, Sally Beauty Holdings reported a 1.5% increase in consolidated net sales, reaching $935 million, and a 2% growth in comparable sales in the fourth quarter of fiscal 2024. The company also announced plans for a brand refresh in the second half of fiscal 2025 and the acquisition of Exclusive Beauty Supplies in Florida. These are part of the company’s strategic initiatives, which also include a goal to save $70 million by the end of fiscal 2025 through its Fuel for Growth program.

Piper Sandler reaffirmed its positive stance on Sally Beauty Holdings, maintaining an Overweight rating and a price target of $17.00. The firm highlighted Sally Beauty as one of its top small-cap ideas for the year 2025, citing the company’s ongoing transformation and strategic initiatives as key drivers for future performance.

TD Cowen upgraded its rating from Hold to Buy, citing the company’s consistent performance and market valuation. The firm also increased the price target for Sally Beauty from $14.00 to $16.00. DA Davidson also adjusted its financial outlook for Sally Beauty, raising the price target to $13.00.

These recent developments underscore Sally Beauty’s commitment to growth and profitability, with analysts from Piper Sandler, TD Cowen, and DA Davidson expressing confidence in the company’s strategic positioning within the beauty supply industry and its leadership in the hair color and care segments.

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