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Floor & Decor investors to react negatively to deceleration in new store openings - Bernstein

Published 01/16/2024, 10:10 PM
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Bernstein analysts downgraded shares of Floor & Decor Holdings (NYSE:FND) to Market Perform from Outperform in a note covering the US 2024 home improvement outlook.

Analysts noted that in the sector, they don't believe there's much lingering COVID-era demand pull-forward, as FY22 and the first half of 2023 saw comp transactions decline sharply. The firm believes this is a signal that "we've likely already seen the volumetric reset that investors were concerned about."

Meanwhile, FND is still viewed as a long-term winner, but Bernstein is now not convinced about its 12-month view. The firm upped the price target for the stock to $115 from $100 per share.

"Our thesis has played out as FND's multiple increased from 24x NTM P/E in Dec 2022, just 5x turns above HD, to 49x, and the stock ended 2023 up 60% on the year," analysts explained. "To be clear, we're modeling EPS modestly above Cons for FY24-FY25, but we're not as high-conviction on the timing as we'd like to be to maintain our OP rating."

"We see way more downside in the multiple than we do upside as FND is trading near its 5-year high," they added. "FND is also crowded both long and short, posing additional asymmetric downside risk to bumps in the road toward macro improvement, especially in 1H23. And we may see a deceleration in new store openings in FY24, to which we believe the market will react negatively."

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