On Thursday, Leslie's Inc. (NASDAQ:LESL) experienced a downgrade in its stock rating by Stifel, moving from "Hold" to "Sell." This change comes in the wake of the company's recent financial update, which saw a substantial reduction in its forecast for FY24 EBITDA. The revised price target set by Stifel now stands at $2.50, a notable decrease from the previous figure of $5.25.
The decision to downgrade Leslie's stock was influenced by the company's announcement after market close, which included a 31% reduction in the midpoint of its EBITDA guidance for FY24. Stifel expressed concern over the magnitude of this revision, which significantly raises the risk profile due to the company's high leverage. This could potentially lead to a detrimental cycle for the company's equity.
Stifel's outlook for Leslie's financial performance in FY25 and FY26 remains cautious. Analysts at the firm point to limited revenue growth prospects and a lack of substantial cost-saving opportunities. As a result, they anticipate that the company's leverage will stay high, which could affect its attractiveness to investors and its capacity to meet category demands.
The firm also remarked on the challenges Leslie's faces in drawing investor interest or excitement. Given the reduced forecast for free cash flow (FCF), which is estimated at just $10 million for FY25 and FY26 before considering working capital, Stifel suggests that finding a support level for Leslie's shares is difficult. The company's market capitalization is currently $752 million.
In other recent news, Leslie's, Inc., a leading company in the U.S. pool and spa care industry, has undergone significant changes. The company recently announced the appointment of Maile (Clark) Naylor to its Board of Directors, following the resignation of Eric Kufel.
Naylor is joining the Audit and Compensation Committees and is expected to bring valuable insights to the company, thanks to her extensive experience and background as an analyst and investor.
In terms of financial performance, Leslie's faced challenges in the second quarter with total sales standing at $189 million, marking an 11% decrease from the previous year.
This decline was attributed to adverse weather conditions and a normalization of consumer spending patterns. Despite the downturn, the company is implementing strategic initiatives to bolster future growth and profitability.
Additionally, Leslie's plans to open 15 new stores and convert 6 residential stores to PRO format in fiscal 2024. The company also aims to reduce debt and reach a leverage ratio of 3.5x to 3.7x by fiscal 2024.
These are part of Leslie's strategic growth initiatives, which also include improving pricing and promotions, reducing inventory, and investing in marketing. These recent developments signify the company's commitment to adapt and grow in the ever-evolving pool supply industry.
InvestingPro Insights
In light of the recent downgrade and the challenges faced by Leslie's Inc., current and potential investors might be interested in some key metrics and insights. According to InvestingPro data, Leslie's market capitalization stands at approximately $753.75 million. The company has been trading at a high earnings multiple, with a P/E ratio of 50.95, which is adjusted to 36.06 for the last twelve months as of Q2 2024. This could suggest that investors are expecting future earnings growth, despite recent setbacks.
InvestingPro Tips indicate that Leslie's stock has experienced significant return over the last week, with a 9.09% total price return, which contrasts with a substantial 41.21% decline over the last six months. Analysts predict the company will be profitable this year, which could be a positive signal amidst the negative sentiment. Additionally, Leslie's liquid assets exceed its short-term obligations, which may provide some financial stability.
For those considering a deeper analysis, InvestingPro offers additional tips to help navigate the complexities of Leslie's financial standing. There are currently 7 more InvestingPro Tips available, which can be accessed by visiting: https://www.investing.com/pro/LESL. To enhance your investment strategy, use coupon code UK10 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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