On Thursday, DA Davidson adjusted its outlook on WD-40 (NASDAQ:WDFC) shares, reducing the price target to $303 from $313, while reiterating a Buy rating on the stock.
The adjustment follows WD-40's third fiscal quarter of 2024 performance, which surpassed expectations. The company reported an 8% increase in constant currency sales, a 9% rise in volume, and a 250 basis point year-over-year improvement in gross margin. Service levels were back to normal by the end of the quarter after minimal disruptions related to the enterprise resource planning (ERP) system.
WD-40's maintenance product sales saw significant growth, with a 29% increase in China and a remarkable 47% surge in Latin America, particularly due to strong performances in Brazil and Mexico.
Despite the positive trends, the firm has chosen to remain cautious, maintaining its full-year 2024 guidance with an anticipation of gross margin at the higher end of the spectrum.
The company's stock experienced a notable increase of approximately 10% in after-hours trading following the earnings report. DA Davidson's revised forecast includes an increase in the fiscal year 2025 sales expectations while keeping the earnings per share (EPS) projection unchanged. However, the firm has slightly decreased its EPS estimate for FY25 to be more conservative in anticipation of future guidance from WD-40.
The new price target of $303 is based on a 53 times multiple of the revised calendar year 2025 earnings per share estimate of $5.72, which has been adjusted down from the previous estimate of $5.91. Despite the lowered price target, DA Davidson's stance on WD-40 remains positive, underlined by the maintained Buy rating.
In other recent news, WD-40 Company (NASDAQ:WDFC) reported a net sales increase of over 9% to $155 million in the third quarter of fiscal year 2024. This was driven by growth in its maintenance products and improved gross margins. The company's net income also rose by 5% to $19.8 million, with a diluted earnings per share of $1.46.
In a strategic move, WD-40 announced its plan to divest its U.S. and U.K. home care and cleaning product brands, aiming to focus on core products and improve sales growth and gross margins to a target of 55% by the end of fiscal year 2026. These are among the recent developments for the company.
Despite facing increased costs due to higher employee-related costs and professional services expenses, the company maintains its fiscal year 2024 guidance, projecting net sales growth of 6% to 12%. The company's management remains confident in achieving its long-term financial targets and continues to make progress on strategic fronts.
InvestingPro Insights
Following the upbeat fiscal quarter report from WD-40, and the subsequent adjustment of DA Davidson's price target, it's worth noting some key financial metrics and expert analysis from InvestingPro. WD-40 boasts a robust Piotroski Score of 9, reflecting strong financial health and profitability, which may reassure investors about the company's fundamental strength. Additionally, the company has demonstrated a commendable commitment to shareholder returns, having increased its dividend for 8 consecutive years and maintained dividend payments for an impressive 32 years in total.
From a valuation perspective, WD-40 is currently trading at a high earnings multiple, with a P/E Ratio of 43.17 and a Price to Book ratio of 13.77 as of the last twelve months ending Q2 2024. While this may suggest a premium valuation, the company's solid revenue growth of 10.31% over the same period provides a positive outlook on its ability to sustain and potentially grow earnings. Moreover, the company's gross profit margin stands strong at 52.05%, indicating efficient operations and a robust competitive position in the market.
Investors looking for additional insights and tips can find more on InvestingPro, including 15 additional InvestingPro Tips for WD-40, which could offer further depth to their investment analysis. For those interested in subscribing, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking a wealth of financial data and expert insights to guide investment decisions.
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