On Tuesday, Wells Fargo (NYSE:WFC) adjusted its stance on Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI), downgrading the stock from Overweight to Equal Weight. The firm also revised its price target downward to $95.00 from the previous $100.00. Trading near $100 and up over 31% year-to-date, the stock is currently showing signs of being slightly overvalued according to InvestingPro analysis. This change reflects the analyst's view that the risk/reward balance for the stock is no longer as attractive as it once was.
The bank acknowledged the company's strong management performance but emphasized the importance of maintaining a cautious approach due to the complexities surrounding Ollie's Bargain Outlet. The company maintains a perfect Piotroski Score of 9 and strong financial health rating on InvestingPro, with a current P/E ratio of approximately 30x. The analyst pointed out that while there is potential for the stock to reach upwards of $115, based on a 30 times multiple of the estimated 2025 earnings per share (EPS) of $3.85-3.90, there are also considerable downside risks.
Wells Fargo's revised price target of $95 is based on a 26 times multiple of the firm's estimated 2025 EPS for Ollie's Bargain Outlet. The analyst suggests that a bear case scenario could see the stock declining to $75, which would be a multiple of 22-23 times the projected 2025 EPS of $3.35-3.40. This bear case scenario takes into account the company's historical performance and the potential risks ahead.
The bank's decision to downgrade Ollie's Bargain Outlet reflects a more conservative outlook on the stock's future performance. With the company's next earnings report due on December 10th, investors seeking deeper insights can access comprehensive valuation metrics and 10 additional ProTips through InvestingPro. The new target price is set with the expectation that the company will continue to execute effectively, but with a recognition of the potential challenges that may impact the stock's valuation.
In other recent news, Ollie's Bargain Outlet has been making strategic moves following the bankruptcy of competitor Big Lots (NYSE:BIG). The company successfully bid for store leases formerly owned by Big Lots, aligning with Ollie's growth plans. Notably, the acquisition of these leases has been positively received by several analyst firms, including KeyBanc, BofA Securities, Loop Capital, and RBC Capital Markets, all of which have maintained Buy ratings and raised their price targets for Ollie's.
On the financial front, Ollie's reported a 12% increase in net sales to $578 million in the second fiscal quarter of 2024, alongside a 5.8% rise in comparable store sales. This strong performance led to an upgrade in the company's sales and earnings guidance for the year. RBC Capital Markets, in particular, revised its fiscal year 2024 and 2025 comparable sales estimates for Ollie's to 3.2% and 3.0% growth, respectively, up from the previous 3.2% and 1.5%.
Finally, a KeyBanc analyst provided insights into the latest retail spending trends, indicating a mixed performance across various sectors. The analysis highlighted a 3.3% decline in the All Retail category for the week ending November 24, marking a deceleration from the previous week's 0.5% decline. This drop contrasts with the gains seen in prior months. The analyst concluded with expectations of more subdued retail performance in the near term, considering the various challenges consumers are facing.
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