On Monday, JPMorgan adjusted its stance on Savers Value Village Inc (NYSE: SVV), downgrading the stock from Overweight to Neutral and reducing the price target significantly to $12 from the previous $21.
The decision comes ahead of the company's second-quarter earnings, with the firm expressing concerns about potential negative performance and revisions to the company's future guidance.
The downgrade to Neutral and the placement on Negative Catalyst Watch by JPMorgan reflects a cautious outlook for Savers Value Village. The firm has revised its second-quarter earnings per share (EPS) estimate for the company to $0.19, which is just below the consensus estimate of $0.20. Additionally, JPMorgan has lowered its forecast for adjusted EPS for the fiscal year 2024 to $0.68, under the Street's expectation of $0.74.
The firm's outlook extends to fiscal years 2025 and 2026, with JPMorgan setting its EPS predictions to $0.75 and $0.81 respectively, both figures falling short of the Street's estimates of $0.81 for FY25 and $0.92 for FY26.
The new December 2025 price target of $12 is based on a multiple of 15 times the firm's FY26 EPS estimate, which corresponds to a price-to-earnings growth (PEG) ratio of 1.9x. This valuation is in line with the company's peers in the Defensive Growth category, considering Savers Value Village's high-single-digit EPS growth algorithm.
The firm anticipates that Savers Value Village will report second-quarter same-store-sales growth and EPS that will not meet the consensus expectations. This prediction has led to the anticipation of a negative revision to the company's fiscal year 2024 guidance. The tentative date for the second-quarter earnings report is set for August 8th, and the market will be watching closely to see if the company's performance aligns with JPMorgan's projections.
In other recent news, Savers Value Village has seen a series of significant developments. The company has amended its credit agreement, adding a $50 million Incremental Revolving Facility, providing additional liquidity possibly hinting at plans for expansion. The change was facilitated through an agreement with KKR Loan Administration Services LLC and PNC Bank, National Association.
Savers Value Village's earnings and revenue results for the first quarter of 2024 indicated a slowdown in growth. In response, Loop Capital and Piper Sandler adjusted their price targets for Savers, reflecting concerns over the Canadian economy and recent underperformance.
The company also expanded its presence into the Southeast market through the acquisition of 2 Peaches Group. Furthermore, Savers Value Village welcomed a new Chief Financial Officer, Michael Maher, who brings over 25 years of experience in the retail and consumer sectors. These recent developments are part of the dynamic environment in which Savers Value Village operates.
InvestingPro Insights
The recent downgrade by JPMorgan has placed Savers Value Village Inc (NYSE: SVV) in a spotlight, with investors seeking clarity on the company's valuation and future performance. According to InvestingPro data, SVV currently holds a market capitalization of $1.89 billion and is trading at a P/E ratio of 31.62. Although the stock has experienced a significant price decline over the past year, with a 52.52% drop in its 1-year price total return, analysts remain optimistic about the company's net income growth for the current year.
InvestingPro Tips suggest that while SVV is trading at a high earnings multiple, the company is expected to be profitable over the last twelve months and analysts predict profitability this year as well. However, it does not pay a dividend to shareholders, which may influence investment decisions for those seeking regular income. With the company's price significantly lower than its previous highs, there could be potential for future appreciation if the company meets its profitability expectations.
For investors considering SVV, it's worth noting that the stock has taken a big hit over the last six months, but with the expectation of net income growth, there may be a case for a turnaround. To explore more detailed analysis and additional InvestingPro Tips, visit https://www.investing.com/pro/SVV. There are 4 more tips available that could further inform your investment decisions. Take advantage of the special offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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