GNC Holdings Inc GNC 5.21% investors can’t help but be excited about the company’s surprisingly solid Q1 earnings report and the stock’s impressive 28 percent two-day rally. However, Deutsche Bank analyst Shane Higgins says GNC bulls shouldn’t get too far ahead of themselves. According to Higgins, GNC still has a lot of questions that need to be answered.
The company’s “One New GNC” strategy appears to be gaining traction among customers, as Q1 traffic trends in pilot stores were positive. In addition, the company’s guidance for $250 million in fiscal 2017 free cash flow far exceeded Deutsche Bank’s estimate of $140 million.
“While we are encouraged by the early progress on the new strategy, we continue to have concerns around where a re-based GNC’s margins are EBITDA shake-out,” Higgins explains.
He points out that GNC has a $1.17 billion term loan maturing in less than two years time, and GNC needs to make major progress for its leverage not to end up a problem.
Deutsche Bank also anticipates that competition in the vitamin and supplement space will remain heated in coming years, providing headwinds to any turnaround efforts.
Despite the strong quarter, Deutsche Bank still sees too many uncertainties to recommend GNC stock. The firm maintains a Hold rating and $9 price target.
A large part of GNC’s huge move this week has likely been driven…
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