On Monday (NASDAQ:MNDY), Canaccord Genuity (TSX:CF) revised its price target for Holley (NYSE: HLLY), a company known for its performance automotive aftermarket parts, reducing it to $6.00 from the previous $7.00 while still maintaining a Buy rating on the stock.
This adjustment came following Holley's third-quarter results, which fell short of consensus expectations and prompted a reduction in the company's full-year 2024 and implied fourth-quarter guidance.
The company's quarterly performance led to a significant drop in its stock price, plunging as much as 17% on Friday. Despite this initial reaction, the stock managed to close without a loss for the day. Canaccord Genuity suggests that investors might be starting to believe that the worst is over for Holley, pointing to management's anticipation of a return to positive organic growth in the first quarter of 2025.
Management's outlook has been a key factor for investors who have been hesitant to engage with the stock. Their expectations of positive organic growth in early 2025 align with what investors have been awaiting. Additionally, the company has provided evidence that its turnaround strategy is beginning to yield results.
Looking ahead, when Holley reports its fourth-quarter results in March, Canaccord Genuity expects the company to present a conservative initial top-line forecast with a low single-digit percentage increase, which is lower than their own 2025 estimate of a 4.6% rise. However, the firm anticipates that Holley will likely return to its historical growth rate of more than 6% by 2026.
In light of these revisions, Canaccord Genuity has lowered its estimates, which in turn has led to the new price target of $6.00. Despite the reduced target, the firm reiterates its Buy rating, expressing confidence that Holley's stock has the potential to offer the highest upside over the next 12 months compared to other companies in Canaccord's coverage.
In other recent news, Holley showcased resilience despite challenging market conditions in its Third Quarter 2024 Earnings Call. The company reported a 14.4% decrease in net sales to $134 million, an improved gross margin of 39%, and a net loss of $6.3 million. However, direct-to-consumer sales saw a significant 110% increase during a marketing campaign, and new product revenue grew by 25% due to better adoption and a formalized B2B sales training program.
In addition, Moody's (NYSE:MCO) upgraded Holley's corporate family rating to B2, reflecting improved operational performance and financial health. The company also 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.
The company expects to begin organic growth in Q1 2025, following inventory normalization. Full-year net sales guidance has been updated to $595-$605 million, with adjusted EBITDA expectations of $115-$120 million.
InvestingPro Insights
Adding to Canaccord Genuity's analysis, recent data from InvestingPro provides further context on Holley's financial situation. The company's market capitalization stands at $327.62 million, with a P/E ratio of 21.18. This valuation comes despite a significant stock price decline, with InvestingPro data showing a 30.83% drop over the past six months and a 43.33% decrease year-to-date.
Despite these challenges, InvestingPro Tips highlight some positive aspects. One tip notes that Holley's valuation implies a strong free cash flow yield, which could be attractive to value investors. Additionally, the company's liquid assets exceed its short-term obligations, suggesting a stable financial position in the near term.
However, aligning with Canaccord Genuity's cautious outlook, another InvestingPro Tip indicates that six analysts have revised their earnings downwards for the upcoming period. This corroborates the article's mention of reduced guidance and tempered expectations for the near future.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide valuable insights into Holley's financial health and market position.
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