Tariffs eventually could position Floor & Decor Holdings (FND) favorably over the long term, although the home-improvement retailer also faces many uncertainties, including the broader economy and the relative health of the housing market on its performance, analysts at Morgan Stanley said on Friday in a new research note.
Overall, the Morgan Stanley analysts said they view Floor & Decor favorably, particularly for investors with a longer-term outlook. The company appears to be largely managing its various challenges well with a long runway of unit, revenue and earnings growth ahead, they said, but also cautioning those prospects are "highly levered to the macro environment."
At current levels, Floor & Decor share price is "demanding," with a price-to-earnings ratio of around 40 times its projected 2025 earnings range of $1.70 to $2.00 per share, the Morgan Stanley analysts said.
The analysts trimmed their price target for Floor & Decor shares to $105 from $115 per share previously, with the new price target reflecting a multiple of 38 times Morgan Stanley's projected 2026 earnings of $2.75 per share. The new forecast also factors in the growing risk of a recession and the analysts' expectations for same-store sales remaining flat coupled with gross margin expansion and sales, general and administrative deleveraging of 40 and 50 basis points, respectively.
The Morgan Stanley analysts on Friday also reiterated their equal-weight rating for Floor & Decor's stock, explaining the company's short-term risks and rewards are relatively balanced at this time.
Floor & Decor shares recently were nearly 3% in afternoon trading on Friday.
Price: 75.00, Change: +2.75, Percent Change: +3.80
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