Evercore ISI Downgrades Floor & Decor Holdings, Inc. (FND) to In Line, 'incremental risk to 2H earnings in a declining home improvement market'

Evercore ISI analyst Greg Melich downgraded Floor & Decor Holdings, Inc. (NYSE: FND) from Outperform to In Line with a price target of $95.00.

The analyst comments "We are downgrading FND to In Line from Outperform, accounting for incremental risk to 2H earnings in a declining home improvement market. The stock has returned to pre-1Q earnings levels despite the risk of a downwards revision to guidance. Floor & Décor remains one of the fastest growing retailers in our coverage. There is a scarcity of secular share gainers in Broadlines & Hardlines and we believe that FND continues to gain share in the hardwood flooring market in the U.S. TraQline data suggests that FND has gained 310bps y/y in the hardwood flooring market since 2020 (fig 3). Yet, we also acknowledge the margin pressure FND faces in 2023. Our estimates diverge from the guide and consensus on the magnitude of 2H trend recovery, particularly regarding the considerable acceleration implied in 4Q. Mgmt’s expectations are predicated on two macro assumptions: That EHS would near a 5mn SAAR and that mortgage rates would fall to a sub 6% level by the end of 2023. Both are also inputs into our Home Improvement Lead Indicator and would account for a marked improvement from current trends. We are less certain. Given the continued regression of our HILI, drawdown in consumer spending capacity (excess savings at $1.1tn), and a worsening backdrop for big ticket discretionary projects, we take a more cautious stance. The bullish perspective remains predicated on a perceived FED cut in the coming months – much of which is likely priced in at +40% ytd vs the S&P up 12%. The stock price close to $100 already discounts a 2024 EPS of well over $3. While long-term the potential for notedly higher revenue and earnings remains, the potential for a re-rating the coming months push us to the sidelines. Our base case of $95 or 30x our revised CY24 EPS of $3.10 holds."

For an analyst ratings summary and ratings history on Floor & Decor Holdings, Inc. click here. For more ratings news on Floor & Decor Holdings, Inc. click here.

Shares of Floor & Decor Holdings, Inc. closed at $96.00 yesterday.

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