Five Below Bottoms, Outlook, And Analysts Support Higher Prices
Shares of Five Below (NASDAQ: FIVE) are moving higher following its Q4 earnings release and guidance update for 2022. The move is being driven not by the results or the guidance because both of those are iffy at best but by the analysts who see potential in the company’s growth story. The company held an investor day in tandem with the earnings release and it was there the company revealed new long-term goals. Those goals include tripling the store count, doubling EPS within the next 3 years, and widening margins but not all of the analysts are on board, at least not yet. Of the 7 analyst commentaries issued since the report was released 4 of them lowered their price targets while only 3 increased theirs.
The salient points in all this are that the analysts are rating the stock a firm Buy with a price target 38% above the post-release price action. The three analysts that increased their price targets have the stock trading near $233 compared to the $225 Marketbeat.com consensus and many of the newly lowered targets are still above consensus.
"The key elements of FIVE's competitive advantages (merchandising, store experience and value) are intact and the innovation pipeline to drive faster growth is as full as we've ever seen it (and now includes a fully realized Five Beyond vision, remodels/conversions, and new experiential additions like ear piercings and balloons). The stock's recent pullback - down 23% YTD including today's 6.5% decline on a below consensus Q1/full year '22 guide - seems to present an attractive buying opportunity,” said Morgan Stanley analyst Simeon Gutman.
Five Below Moves Higher On Mixed Results
As bright as the outlook is, the Q4 results and guidance are not what the market was looking for. The company reported $996.33 million in revenue which is up 16.1% from last year but missed the consensus by 140 basis points. The gains were driven by a weak 3% comp gain coupled with robust store growth that delivered a record-setting year for the company. Moving down to the income, the company experienced margin compression but less than expected leaving the GAAP earnings above consensus. The operating income increased by 10.6% compared to 16.1% for revenue with net income up a slightly stronger 13%. On the bottom line, the $2.49 is up $0.29 to $2.49 and beat by a penny.
The guidance is actually worse than the results with comps expected to be negative in the first half of the year and both Q1 and FY revenue and earnings below consensus. The company is expecting Q1 revenue below $658 compared to the consensus of $686 with the full-year coming in at a max of $3.26 compared to $3.34. In our view, there is upside risk in the numbers but not enough to offset the weakness in guidance, a fact that may put a lid on price action over the next few months.
The Technical Outlook: Five Below Is Bottoming
Shares of Five Below appear to be bottoming but the vital question of reversal is still to be answered. While price action is forming a Head & Shoulders this pattern could lead to range-bound trading over the next quarter or so. Price action appears to be forming the right shoulder of the pattern which suggests a move up to test resistance at the neckline. We put the neckline in the range of $176 to $200, a move above that level would be bullish. In that scenario, price action could easily move up to the $210 region. If not, a range between $150 and $180 is what we predict.
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