Truist Securities cuts European Wax Center stock target to $6

On Tuesday, Truist Securities adjusted its outlook on European Wax Center (NASDAQ:EWCZ), reducing the price target from $8.00 to $6.00 while maintaining a Buy rating on the company’s shares. The revision comes after the fourth-quarter results were reported to be roughly in line with the firm’s estimates. The decrease in price target is attributed to an anticipated increase in store closures for the upcoming year, which is expected to be around 4% of the company’s base, compared to the previous estimate which projected no closures. According to InvestingPro data, the company maintains impressive gross profit margins of 73.1% and a healthy current ratio of 3.17, indicating strong operational efficiency despite the challenges.

European Wax Center’s stock has experienced a decline of approximately 15% due to the forecast of more store closures than initially expected. The stock has fallen nearly 65% over the past year, with a particularly sharp 23.4% decline year-to-date. Despite this setback, Truist Securities believes that the company’s restructuring efforts will ultimately enhance unit profitability and stimulate franchisee demand. The analyst from Truist Securities noted that while near-term earnings will face pressure, they should remain relatively stable. The company is still seen as highly profitable with an attractive long-term outlook, supported by InvestingPro’s analysis showing net income growth expectations for this year.

The analyst’s commentary highlighted that the current stock valuation is at an all-time low, suggesting that European Wax Center could potentially offer strong returns over time as it navigates through this transition period. InvestingPro analysis indicates the stock is currently undervalued, with 14 additional ProTips available to subscribers, including insights on shareholder yield and cash flow metrics. Truist Securities’ stance remains positive, encouraging investors to continue buying despite the recent challenges and the lowered price target.

The company’s profitability and the potential for improved franchisee operations post-restructuring are central to Truist Securities’ optimism about European Wax Center’s future performance. With a return on equity of 13% and a PEG ratio of 0.36, suggesting attractive growth potential relative to its current valuation, the firm’s analysis indicates that after the expected short-term disruptions, European Wax Center could emerge stronger and continue to be a compelling investment in the long term. Discover more detailed insights and comprehensive analysis in the Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, European Wax Center reported its Q4 2024 earnings, revealing a decrease in total revenue to $49.7 million, missing the market forecast of $51.91 million. This revenue decline represents a 4.6% year-over-year drop, although system-wide sales saw a slight increase of 1.1%. The company has announced plans for significant center closures in 2025, with expectations of closing 40 to 60 centers due to ongoing market challenges. Despite these challenges, the company projects system-wide sales between $940 million and $960 million for 2025, with total revenue anticipated to be between $210 million and $214 million. European Wax Center is also focusing on strategic changes, including new executive appointments aimed at driving future growth. The company has faced inflationary pressures affecting franchisee profitability, particularly in regions like California. Analysts have shown concern over the revenue miss, but the company’s efforts to stabilize and reaccelerate growth are ongoing.

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