Holley On The Verge Of A Business Turnaround, Analyst Upgrades To Outperform

Telsey Advisory Group analyst Joseph Feldman upgraded the shares of Holley Inc HLLY from Market Perform to Outperform and raised the price target from $3 to $7.5.

According to the analyst, the business seems to be at an inflection point where it has bottomed or is close to doing so as the company now laps easier comparisons going forward after sales declines dating back to 2Q22 after the major pull-forward in demand during the pandemic.

The planned removal of significant cost from the business following downsizing and enhancements to operational efficiency, including from synergies with integration of previous acquisitions was helpful, said the analyst.

While the shortage of electronic product microchips should remain a headwind, the company is redesigning products to rely less on these older chips, including a new, electronic fuel injection system product called the Sniper 2 launched on August 2, added the analyst.

The analyst believes gains from these catalysts should be buttressed by a relatively solid consumer, moderating inflation, and low unemployment.

The analyst observed that Holley also should be able to gain market share from product innovation, category expansion, platform expansion, and direct-to-consumer growth.

The analyst forecasts Q2 total sales to decline 4.0% to $172.2 million versus consensus of $172.6 million, gross margin to compress 380 basis points to 38.2%.

The analyst expects FY23 sales to decline 3.3% to $665.7 million and the adjusted EBITDA margin expansion of 520 basis points to 18.5%.

Holley is scheduled to report 2Q23 earnings on Thursday, August 10, 2023.

Price Action: HLLY shares are trading higher by 11.6% at $6.83 on the last check Monday.