On Thursday, Guggenheim maintained a Buy rating on Five Below (NASDAQ:FIVE), but significantly lowered the price target to $165 from the previous $230. The adjustment comes amid concerns over an unexpected and substantial decline in comparable store sales, which has introduced greater unpredictability into the company's profit and loss forecasts as it approaches a potentially difficult holiday season.
The company has attributed this downturn to the current macroeconomic environment, rather than shifts in competition or business execution. In response, Five Below is implementing pricing and marketing strategies, and has forecasted mid-single-digit declines continuing through the end of the year.
Guggenheim has revised its EBITDA and EPS projections for Five Below downwards for the years 2024 to 2026 in light of these developments. Despite the reduction in the price target, the firm's analysts maintain a positive outlook on the retailer, citing two main reasons for their continued Buy rating.
Firstly, they anticipate a robust recovery in profits driven by the expansion of new units by 2025. Secondly, they point to the stock's performance, noting that the year-to-date sell-off, which includes a 15% drop in after-hours trading, has brought Five Below's estimated 2024 EBITDA multiple down to 16.6 times, a figure they consider to be significantly lower than the high-teens multiple that is standard for the sector.
Five Below has been experiencing a series of adjustments in share price targets by various firms.
JPMorgan reduced its price target from $170.00 to $122.00, maintaining a Neutral rating. This change was influenced by declining sales trends and a consistent decrease in total basket size over the past eight quarters. The firm also anticipates a low-to-mid-teens earnings per share (EPS) growth on a multi-year basis, post an approximate 100 basis points of operating margin recapture through fiscal year 2026.
Telsey Advisory Group also adjusted its outlook on Five Below shares, reducing the price target from $220.00 to $155.00, yet maintaining an Outperform rating. This followed Five Below's report of weaker-than-expected earnings for the first quarter of 2024 and a downward revision of its full-year guidance. The company posted adjusted earnings per share (EPS) of $0.60, missing the analyst consensus of $0.63, and revenue of $811.9 million, below the expected $835.01 million.
Truist Securities reduced its price target for Five Below shares to $176 while maintaining a Buy rating, suggesting that the company might be overestimating shrinkage pressures. Despite the reduced earnings per share (EPS) estimates for fiscal years 2024 and 2025 by 2% to 3%, Truist Securities suggests that Five Below might be overestimating shrinkage pressures, which could potentially result in a stronger second half of the year.
These are recent developments surrounding Five Below, providing investors with a snapshot of the company's current situation.
InvestingPro Insights
Amidst the recent adjustments in Five Below's financial outlook, InvestingPro data provides a deeper perspective on the company's valuation and performance. With a market capitalization of $7.33 billion USD and a P/E ratio standing at 24.43, investors are weighing the company's earnings potential against its current share price. Notably, Five Below's P/E ratio has remained relatively stable, with the last twelve months as of Q4 2024 showing a figure of 24.34.
The company's revenue growth has been solid, with an increase of 15.7% over the last twelve months as of Q4 2024, and a quarterly rise of 19.15% in Q4 2024. This indicates a robust expansion in sales, despite the headwinds faced in the retail sector. Additionally, Five Below's gross profit margin stands at a healthy 35.79%, reflecting its ability to maintain profitability in a challenging economic climate.
InvestingPro Tips highlight that while Five Below is trading at a high Price/Book multiple of 4.62, which suggests a premium valuation, the company is also operating with a moderate level of debt, which may offer some financial flexibility. Moreover, analysts predict the company will be profitable this year, and it has been profitable over the last twelve months, reinforcing the positive outlook in terms of earnings. For those considering adding Five Below to their portfolio, InvestingPro offers additional insights and tips, with a total of 12 tips available, which can be accessed with the exclusive coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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