On April 18th at 12:30pm ET we’re going to do deep dive into the FND bull case. FND has been a frustrating short; earnings expectations for 2024 when we went short in fall ’22 were around $4.20… now they are clocking in around $1.90. Rate of change over the last 9 months has been ugly too. We got less bearish on the last print, but we still think this is deserving of being a Best Idea Short. Near term its unlikely comps get worse in the upcoming months given how bad the quarter started, so rate of change is less bearish, and given earnings have crashed and that stock hasn’t over the near term the short call now relies too much on valuation. Over the long-term we are seeing what we think is a big variance in implied earnings and the actual trajectory the company will take. The bull case seems to be massive comp and earnings upside when home turnover picks up and affordability gets better. The problem is home turnover has barely moved off the near all-time lows, supply is still very low and prices and rates are rising in recent weeks, and the fed ‘cut’ keeps getting kicked down the road. We think there is an increasing risk that the comp and earnings upside will end up being well below what is implied in the stock trading around 65x. For now the massive negative earnings catalysts are likely behinds us, and the bear case might actually rely on what the business fundamentals look like when the bull case starts to play our from a home turnover perspective.
In our deep dive we’ll look at store cohorts in terms of the addressable market of each location, the visits performance for those stores over the past few years, and what incremental store opportunities look like. We’ll also assess the capital intensity of new store buildouts which we think is contributing the company’s shift on the margin towards smaller format stores. We’ll also look at spending dynamics around home turnover particularly in the context of a drastic change in home affordability which we’ll look at with a scenario analysis of various turnover levels and income/affordability levels, while keeping in mind the addressable market of shifting carpet to hard flooring is shrinking over time.
This will be a research product of high value for anyone interested in FND Long or Short, and many of the insights will likely be useful across the home improvement and home retail landscape.
Call Details:
Thursday April 18, 12:30pm ET
Live Video Link To Be Provided Prior To Call
Add To Calendar CLICK HERE