Tuesday, Mizuho initiated coverage on Leslie's (NASDAQ:LESL) with a Neutral rating and a stock price target (PT) of $7.00. The firm's analysis indicates that Leslie's is facing challenges with its core pool consumables business. This sector experienced significant price increases in recent years, which the firm believes led to a period of heightened earnings that may not be sustainable.
Leslie's is currently dealing with a shift in chlorine prices, which are becoming more promotional and deflationary. This trend is expected to persist over the coming quarters. The company's guidance for the remainder of the fiscal year 2024 (FY24E) suggests a potentially weaker pool season than previously anticipated.
The report suggests that Leslie's needs to demonstrate improved performance and customer stability before gaining more confidence from investors. The firm emphasizes that while there is long-term value in Leslie's, the company is still in the nascent stages of recovery. This follows a negative pre-announcement in the third quarter of fiscal year 2023 (3Q23A), which has impacted the company's credibility.
Mizuho's position reflects a wait-and-see approach, indicating that the stock may have potential but is currently undergoing a period of adjustment. The firm's neutral rating suggests that investors may want to observe Leslie's progress in the coming quarters before making more definitive investment decisions.
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