Morgan Stanley Resumes Coverage on Soho House & Co Inc. (NYSE: SHCO) with Equalweight Rating and $5.50 Price Target
Morgan Stanley has resumed coverage on Soho House & Co Inc. (NYSE: SHCO) stock, assigning an Equalweight rating and setting a price target of $5.50. The firm highlighted the company's financial and operational leverage as significant factors influencing the risk-reward balance for the share price.
Key Points:
- Soho House's lease-adjusted debt is approximately 5.8 times its expected 2024 EBITDAR, higher than the industry average.
- G&A expenses are about half of the company's EBITDA plus G&A, while D&A costs make up about 70% of EBITDA.
- Membership fees provide revenue stability, but high fixed costs could impact earnings with minor revenue fluctuations.
- Current market conditions in the restaurant and leisure sectors are negative, warranting caution.
Analysis:
Despite projections for lower EBITDA in 2024 and 2025, Soho House is expected to see a 22% CAGR through 2026, surpassing peers. However, this growth comes with higher leverage. Shares are trading at 18 times NTM EV/EBITDA, above peers' valuations.
Recent Financial Performance:
- Q2 loss exceeded expectations, but revenue growth was strong.
- Membership growth remained robust.
- Revenue guidance for 2024 is in line with analyst expectations.
InvestingPro Insights:
Soho House's financial health and stock performance are under scrutiny, with concerns about short-term obligations and analyst predictions of unprofitability. The stock has seen strong returns over the last month and three months. However, it does not pay dividends, which may impact income-focused investors. The stock is trading above fair value estimates.
InvestingPro Tips:
Investors should be aware of SHCO's high EBITDA valuation multiple and premium trading compared to peers. Additional insights are available on InvestingPro.
In conclusion, Soho House & Co's financial performance and market outlook present a mixed picture for investors. It is crucial to consider the company's leverage, growth prospects, and valuation before making investment decisions.