At Home Receives Valuation Warning From Jefferies

Buying At Home shares at elevated levels could be a losing proposition, says a Jefferies analyst.
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At Home  (HOME) - Get Report shares plunged Wednesday, despite better-than-expected quarterly earnings from the home goods retailer, after Jefferies analyst Jonathan Matuszewski warned that the stock is quite pricey.

At Home recently traded at $17.40, down 25.42%, but has skyrocketed 324% so far this year even after Wednesday’s drop.

Buying the stock at elevated levels could be a losing proposition, according to Matuszewski, Bloomberg reported. He has a hold rating and increased his share-price target to $22 from $11.

On the plus side, “Aspects of HOME’s value proposition are advantageous, though competition and channel shift are headwinds,” he said. At Home offers “notable industry outperformance” and is “one of the few winners” in the back-to-school season, Matuszewski said.

But some of these “drivers of outsized performance” may be “transitory,” he said. At Home faces inventory drops of 20% in the third quarter and nearly 10% in the fourth, he said. Thus, the “risk of unmet demand is clear.”

Not everyone is stressing the risks for At Home. Guggenheim analyst John Heinbockel said that “top-line growth is translating into robust profit margins, and the resulting free cash flows have meaningfully de-levered the balance sheet."

Operating momentum may well remain “healthy,” pushing the stock higher, he said. At Home shares sport a paltry price-to-adjusted Ebitda ratio of less than 8, Heinbockel noted.

Comparable-store sales growth remains strong, though Heinbockel expects a “moderation in coming months, especially once seasonal inventory constraints become more pronounced in October.”

Still, the company’s impressive balance sheet progress during the past three months should spark additional margin growth, he said.

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