On Monday (NASDAQ:MNDY), Telsey Advisory Group adjusted its outlook for Holley (NYSE:HLLY) shares, a company specializing in automotive aftermarket products. The firm reduced the price target to $4.50 from the previous $5.50 but kept an Outperform rating on the stock.
Holley's third-quarter performance for 2024 revealed a significant 26% year-over-year decline in adjusted EBITDA, which fell to $22.1 million, missing both Telsey's forecast of $26.3 million and the FactSet consensus of $26.1 million. The company's sales also underperformed, with a 14.4% decrease to $134.0 million compared to the anticipated $145.6 million by Telsey and $142.5 million by FactSet.
The analyst noted that the demand for Holley's products weakened due to various macroeconomic challenges such as inflation, rising interest rates, and a consumer shift from goods to services. Moreover, uncertainties related to the election have led resellers to adjust their inventory levels.
Despite these headwinds, it was also pointed out that Holley's improved product fulfillment speed has contributed to a reduction in reseller inventories, as lead times have decreased by three weeks compared to the previous year.
In response to the ongoing demand challenges, Holley has revised its 2024 sales guidance downward to a range of $595 million to $605 million from the previous forecast of $605 million to $645 million. The FactSet consensus had estimated sales at $627 million. Moreover, the adjusted EBITDA forecast has been lowered to a range of $115 million to $120 million from the prior estimate of $117 million to $132 million, against a FactSet consensus of $124 million.
Despite the downgrades in financial projections, the company remains optimistic about the future. Holley anticipates that reseller inventories have now normalized and expects that the easier sales comparisons will support a return to top-line growth in the first quarter of 2025.
In other recent news, Holley has witnessed a series of significant developments. The company recently reported a 14.4% decrease in net sales to $134 million in its third quarter. Despite the decrease, Holley managed to improve its gross margin to 39% and reported a net loss of $6.3 million. Notably, the company saw a substantial 110% increase in direct-to-consumer sales during a marketing campaign, and new product revenue grew by 25%.
In the wake of these results, Canaccord Genuity revised its price target for Holley, reducing it to $6.00 from the previous $7.00 but maintained a Buy rating on the stock. This adjustment came after Holley's quarterly results fell short of consensus expectations, prompting a reduction in the company's full-year 2024 and implied fourth-quarter guidance.
Moody's (NYSE:MCO) has upgraded Holley's corporate family rating to B2, reflecting improved operational performance and financial health. Moreover, the company has sold Detroit Speed, with no further brand divestitures planned at this time. Amid these developments, Holley is focusing on omnichannel enhancement, operational improvements, and product innovation to drive future growth.
InvestingPro Insights
To provide additional context to Holley's (NYSE:HLLY) current situation, recent data from InvestingPro offers some valuable insights. Despite the challenges highlighted in the article, Holley maintains a market capitalization of $327.62 million, reflecting its significant presence in the automotive aftermarket sector. The company's Price to Book ratio of 0.71 suggests that the stock may be undervalued relative to its book value, which could be of interest to value investors considering the recent price target adjustment by Telsey Advisory Group.
InvestingPro Tips indicate that Holley has been profitable over the last twelve months, with analysts predicting continued profitability this year. This aligns with the company's optimistic outlook for growth in Q1 2025. However, it's worth noting that net income is expected to drop this year, which corresponds with the revised guidance mentioned in the article.
The stock's performance has been challenging, with InvestingPro data showing a 30.83% decline over the past six months. This decline is consistent with the macroeconomic headwinds and demand weaknesses discussed in the article. For investors seeking more comprehensive analysis, InvestingPro offers 8 additional tips for Holley, providing a deeper understanding of the company's financial health and market position.
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