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Bull of the Day: Party City Holdings (PRTY)

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Party City Holdco Inc. (PRTY - Free Report) , a Zacks Rank #1 (Strong Buy), is involved in designs, manufactures, contracts for manufacture and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery. It also operates specialty retail party supply stores primarily in the United States and Canada.

Recent Earnings Data

In the most recent reported quarter, the company saw year over year gains in total revenues, adjusted EBITDA, income from operations, and free cash flows.  Further, during the quarter, Party City opened 6 new stores while closing just one store.  Also, the company guided in line with Q4 and FY 17 estimates.

Growth Drivers Going Forward

Management has been focused on executing its retail initiatives, elevating its e-commerce, and cost controls.  And due to the success of these initiatives management now expects revenue growth between 4%-6%, EBITDA growth and EPS Growth to be between 8%-12% over the next three to five years.  Further, the company now expects their tax rate to drop from 37% in 2017 to 25% in 2018.  Also during the earnings call, management announced a $100 million share repurchase program.  Lastly, the company stated that they are also open to another strategic acquisition in its wholesale business, which would help further margin expansion.  

Management’s Take

According to James Harrison, CEO, “Our bottom-line performance in the third quarter once again demonstrated the inherent benefits of our unique vertical model. Despite modest topline growth, and slightly softer than expected retail brand comps, in part driven by the hurricane disruptions, we delivered solid financial performance which was largely in-line with expectations, as we focused on the core fundamentals of gross margin expansion and disciplined cost control, resulting in Adjusted EPS growth of over 8%.”  Mr. Harrison continued, “We are encouraged by the progress made on our strategic growth initiatives during the quarter, and remain focused on enhancing the shopping experience both in our stores and online. We are also encouraged by the comp sales performance across our permanent stores and the improved trend for the core Everyday business. However, our web business experienced platform performance issues that negatively affected traffic levels on our site and drove the overall brand comp sales decline in the quarter, and we are aggressively addressing these issues.”

Price and Earnings Consensus Graph

As you can see in the graph below, the company’s the recent initiatives by management has caused the stock price, and future earnings estimates to rebound after declining for most of 2017.

Party City Holdco Inc. Price and Consensus

Party City Holdco Inc. Price and Consensus | Party City Holdco Inc. Quote

Increasing Earnings Estimates

Over the past 30 days, earnings estimates for Q4 17, Q1 18, FY 17, and FY 18 have all seen positive earnings estimate revisions; Q4 17 improved from $0.77 to $0.80. Q1 18 rose from $0.06 to $0.07, FY 17 was lifted from $1.23 to $1.24, and FY 18 jumped up from $1.42 to $1.81.

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