On Thursday, Truist Securities adjusted its price target for European Wax Center (NASDAQ:EWCZ), a company listed on the NASDAQ stock exchange, reducing it to $8 from the previous $16. Despite this change, the firm has maintained a Buy rating on the stock.
The decision to lower the price target follows European Wax Center's second-quarter results, which were reportedly in line with expectations. However, the company significantly reduced its projections for unit growth in 2024, a key element of its business model. The revision is believed to be a response to worsening economics at the unit level, particularly due to increased pressure on episodic customers, who make up about 25% of the company's customer base.
Truist Securities noted that while the forecast for future growth has been affected, European Wax Center remains a highly profitable and cash-generating business. The firm acknowledges that transitioning from a growth focus to a value orientation is challenging, but suggests that the risk of further downside is limited.
This assessment is based on the company's established business model, its ability to generate cash, and the upside potential should store growth reaccelerate.
The firm's commentary highlights the company's valuation, suggesting that the current price represents approximately 10 times its earnings before interest, taxes, depreciation, and amortization (EBITDA) and 15 times its earnings per share (EPS). Despite the revised price target, Truist Securities continues to see the European Wax Center as a viable investment, with an attractive entry point for buyers at the current levels.
In other recent news, European Wax Center (EWC) has reported a 2.3% increase in its second-quarter system-wide sales, reaching $260.2 million. Despite facing a challenging macroeconomic environment, the company witnessed a growth of 1.6% in same-store sales and an improved gross margin of 73.2%. However, due to higher advertising costs, the adjusted EBITDA fell by 2.6%, leading EWC to revise its financial guidance for 2024.
In response to these recent developments, both Baird and Citi have adjusted their ratings and price targets for the company. Baird maintained a Neutral rating but lowered the price target to $7.00 from $13.00, while Citi downgraded EWC from a Buy to a Neutral rating and significantly adjusted the price target to $5.50 from the previous $16.00.
Furthermore, EWC has announced plans to expand its successful laser hair removal pilot to additional states, with a focus on driving new guests, reactivating lapsed guests, and enhancing the guest experience. The company expects to open 27 to 32 net new centers and achieve system-wide sales of $930 million to $950 million.
InvestingPro Insights
In light of Truist Securities' revised price target for European Wax Center, additional insights from InvestingPro may provide a clearer picture of the company's current financial health and future prospects. European Wax Center's management has been actively repurchasing shares, signaling confidence in the company's value (InvestingPro Tip #0). Moreover, the company's net income is expected to grow this year, which may indicate potential for recovery and future profitability (InvestingPro Tip #2).
From a financial metrics standpoint, European Wax Center boasts an impressive gross profit margin of 72.33% over the last twelve months as of Q1 2024, reflecting strong operational efficiency (InvestingPro Data). Despite recent price volatility, with the stock trading near its 52-week low, the company's valuation implies a robust free cash flow yield (InvestingPro Tip #8), which could be attractive to value-oriented investors. The company's P/E ratio, adjusted for the last twelve months as of Q1 2024, stands at 20.03, which, when coupled with its PEG ratio of 0.13, suggests that the stock may be trading at a low price relative to near-term earnings growth (InvestingPro Tip #7).
For readers interested in a deeper analysis, there are 18 additional InvestingPro Tips available, offering a comprehensive understanding of European Wax Center's investment profile. These insights could help investors make more informed decisions, especially when considering the company's transition from growth to value orientation as noted by Truist Securities.
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