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Roth/MKM holds positive thesis on Purple shares, citing stable cash and margin gains

EditorAhmed Abdulazez Abdulkadir
Published 05/11/2024, 12:42
PRPL
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On Tuesday, Roth/MKM made an adjustment to the price target for Purple Innovation (NASDAQ:PRPL), reducing it to $1.50 from the previous $2.00, but retained a Buy rating on the stock. The adjustment followed the company's third-quarter performance, which did not match the previous year's gains that were bolstered by a new product launch. The core bedding and mattress industry's demand continues to be subdued.

The analyst noted that despite the softer third quarter, there has been visible margin improvement, and the fourth-quarter profit forecast remains unchanged. Additionally, Purple Innovation's management has revised its guidance to the lower end of its 2024 projections. Nevertheless, the analyst believes that the company's ongoing restructuring efforts should enable it to achieve at least breakeven adjusted EBITDA by 2025.

The company's cash position is expected to remain stable through 2025, which supports the analyst's positive outlook on Purple Innovation. The analyst highlighted that, given the anticipated sustained profit inflection, the rationale for maintaining a Buy rating on the stock is still valid, despite the lowered price target.

In summary, the analyst expressed confidence in Purple Innovation's future profitability and financial stability, reinforcing the sentiment with a continued Buy rating, although acknowledging the need to adjust the price target to $1.50 in light of recent developments and market conditions.

In other recent news, Purple Innovation, a notable entity in the household furniture industry, reported a minor increase in total sales during its second-quarter 2024 earnings call. However, the company adjusted its full-year revenue outlook downwards, attributing the revision to industry trends and a decrease in e-commerce sales.

Concurrently, Purple Innovation announced the closure of two of its manufacturing facilities in Utah, centralizing operations at its newer Georgia facility, a move anticipated to enhance the company's EBITDA by $15 million to $20 million in 2025.

In a strategic effort to protect its net operating loss carryforwards, the company's stockholders ratified a Stockholder Rights Agreement, known as the NOL Rights Plan, and an amendment to the company's Certificate of Incorporation. The NOL Rights Plan aims to prevent certain share acquisitions that could limit Purple Innovation's ability to utilize its NOLs to offset future tax liabilities, while the NOL Charter Amendment imposes additional restrictions on the transfer of the company's common stock to safeguard the NOLs until June 30, 2025.

Analysts from KeyBanc Capital Markets have maintained their positive stance on Purple Innovation, reiterating an Overweight rating. KeyBanc suggests that operational efficiencies resulting from the consolidation could lead to better financial outcomes than initially projected.

InvestingPro Insights

Recent InvestingPro data provides additional context to Purple Innovation's (NASDAQ:PRPL) financial situation, aligning with the analyst's observations. The company's revenue for the last twelve months as of Q2 2024 stands at $526.24 million, with a modest growth of 2.82%. This tepid growth reflects the subdued demand in the bedding and mattress industry mentioned in the article.

InvestingPro Tips highlight some challenges facing Purple Innovation. The company is "quickly burning through cash" and "may have trouble making interest payments on debt," which underscores the importance of the analyst's note on the company's expected stable cash position through 2025. Additionally, the tip that "analysts do not anticipate the company will be profitable this year" aligns with the article's mention of the company aiming for breakeven adjusted EBITDA by 2025.

The stock's volatility is evident from the InvestingPro data showing a -41.61% price return over the past six months. This volatility, combined with the recent price target reduction, illustrates the market's uncertainty about Purple Innovation's near-term prospects.

For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Purple Innovation, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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