Analyst cuts Children's Place to Sell amid 'unfavorable risk/reward'
B. Riley Securities analysts downgraded The Children’s Place (PLCE) stock to Sell from Neutral and reduced the target price to $4 from $19, citing an “unfavorable” risk-reward evaluation.
Analysts maintain that PLCE holds the potential to consistently generate an EBITDA between $75 million and $150 million, however, they see this perspective as “speculative.”
In the fourth quarter of 2023, the company’s performance suffered due to strategic decisions made to enhance borrowing capacity and remain compliant with its credit agreement terms.
“In our experience, once companies begin making decisions they would not make in the ordinary course of business to comply with credit agreements, the sequence of events that follows is not equity friendly,” analysts said.
B. Riley’s projections, rating, and price target for PLCE are based on the assumption that it will produce $77 million in EBITDA for FY24 and secure an additional $50 million in senior equity capital, leading to a 50% dilution of existing equity.
Under these conditions, applying a 4x multiplier to the broker’s FY24 EBITDA forecast suggests a stock price of approximately $4 per share in 12 months and $11.31 per share in 24 months, leveraging its FY25 EBITDA prediction of $113 million.
“We see the probability that PLCE’s share price reaches $4 or less in the next 12 months as high and don’t believe the upside potential is either high or likely enough to compensate for what would be a highly speculative investment thesis,” analysts concluded.
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