Holley Inc (NYSE:HLLY) stock rose 4.32% (As on July 13, 11:32:12 AM UTC-4, Source: Google Finance) after the stock was upgraded by two tier-one equity research firms, JPMorgan and Bank of America. JPMorgan upgraded the stock from “neutral” to “overweight” with a price target of $7, implying an upside of 60% from yesterday’s close. BofA Securities upgraded the stock from “neutral” to “buy” with a price objective of $6, implying an upside of over 35%. JPMorgan said the upgrade was based on valuation and expectations for revenue upside in 2023 and 2024, given conservative guidance. They also see margin upside and receding leverage rations due to growth and debt reduction.
JPMorgan analysts said, “While there are overhangs weighing on the stock (lingering skepticism from 2022, leverage and illiquidity), the analyst see a path to upward revisions and modest balance sheet deleveraging, which should counteract the overhangs and potentially re-rate the stock higher.” BofA said web traffic data suggests revenue upside in the second quarter. Analysts at the bank expect recent cost cuts to drive stronger operating leverage, and they see opportunity for margin improvement.
BofA analysts explained, “In the analyst view: (1) web traffic and foot traffic for Holley.com and resellers imply 2Q revenue upside; (2) recent cost cuts should drive stronger operating leverage vs. expectations, and (3) an outlook for an improving sourcing environment for Electronic Fuel Injection (EFI) products should support C24 margins.”
On the other hand, Net Sales decreased 13.9% to $172.2 million compared to $200.1 million in the prior year’s first quarter. Gross Profit decreased 18.1% to $67.7 million compared to $82.7 million in the prior year’s first quarter. Net Income of $4.3 million, or $0.04 per diluted share, compared to Net Income of $16.9 million, or $0.15 per diluted share, in the prior year’s first quarter. Adjusted EBITDA1 of $33.9 million compared to $46.0 million in the prior year’s first quarter
For fiscal 2023, net Sales is expected to be in the range of $625-$675 million, Adjusted EBITDA is expected to be of $108-$122 million, Capital Expenditures is expected to be in the range of $10-$15 million, Depreciation and Amortization Expense is expected to be of $23-$25 million and Interest Expense is expected to be in the range of $60-$65 million. The company assumes that it will face continued supply chain uncertainty, particularly a strained ability to procure automotive grade microchips, as a well as a normalization of demand for the remainder of the fiscal year.