On Tuesday, JPMorgan made a significant adjustment to its view on Holley (NYSE:HLLY), downgrading the stock from Overweight to Neutral and setting a new price target of $5.00, down from the previous $6.50. The firm also placed Holley on Negative Catalyst Watch ahead of the company's fourth-quarter earnings report slated for next Wednesday, February 28, 2024.
The downgrade was attributed to several factors, including the anticipation of sales figures not meeting the expectations set for the second half of the year, and concerns that Holley may not achieve its projected gross margin and EBITDA margin targets for 2024. JPMorgan's analyst noted that while the new CEO, Matt Stevenson, has implemented positive changes, such as volume rebates to incentivize resellers, there are still challenges ahead for Holley.
The firm highlighted that the Street might be overestimating Holley's 2024 sales and that the upcoming earnings report could lead to a reset of financial projections. This potential for lower numbers is seen as a negative catalyst for the stock's multiple, with the margin improvement story possibly being delayed until 2025.
JPMorgan's price target of $5.00 is based on a valuation of 10 times and 8.5 times EV/EBITDA on its 2024 and 2025 estimates, respectively. This valuation is slightly below where Holley's stock is currently trading, indicating that the firm sees limited upside potential for the stock in the near term.
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