Loop Capital reiterates buy rating on Dave & Buster's stock

Loop Capital is maintaining its Buy rating and $46 price target on Dave & Buster's (PLAY), citing substantial EBITDA upside potential from the company's "Back to Basics" initiative, despite a recent share price recovery. While Dave & Buster's recent Q1 results missed expectations with a revenue decrease of 3.5% and an EPS of $0.76 versus the expected $1.01, Loop Capital believes the company can generate meaningful EBITDA results exceeding current estimates, and sees the current EV/EBITDA multiple as attractive.

Analysis

Loop Capital maintained its Buy rating and $46.00 price target on Dave & Buster’s (PLAY), highlighting "substantial EBITDA upside potential" driven by the company's "Back to Basics" initiative under new leadership, despite a recent share price recovery. This optimism is supported by a target valuation of approximately 6.5 times Loop Capital's fiscal year 2025 EV/EBITDA estimate, which contrasts with the current last-twelve-months (LTM) EV/EBITDA multiple of 10.03x, based on $457.8 million LTM EBITDA. Dave & Buster’s fiscal first quarter results, however, missed analyst expectations, with adjusted earnings per share at $0.76 compared to the anticipated $1.01, and revenue of $567.7 million falling short of the $573.25 million forecast, a 3.5% decrease year-over-year. Same-store sales also dropped by 8.3% during the quarter, which the company attributed to marketing and operational missteps. Despite these figures, Loop Capital views the Q1 results as "clear evidence that the platform is off to a very promising start" strategically and projects that various scenarios for comparable sales in the second half of fiscal year 2025 and fiscal year 2026 could generate EBITDA exceeding current estimates. Other analysts have noted improving sales trends, with UBS and BMO Capital raising their price targets to $29 and $35, respectively. Loop Capital reiterated its Buy rating and $46 price target, citing positive developments in strategic initiatives. Furthermore, Dave & Buster's announced the promotion of Les Lehner to Chief Development Officer, who will oversee a pipeline of approximately 40 new stores expected to open over the next three years, signaling continued focus on expansion.

Key Decisions for Investors

• Investors should evaluate the potential for significant EBITDA improvement driven by the "Back to Basics" strategy and new store openings, as emphasized by Loop Capital, against the backdrop of the recent Q1 earnings and revenue miss.
• Close monitoring of subsequent quarterly reports is essential to validate the turnaround thesis, particularly focusing on same-store sales trends, which saw an 8.3% decline in Q1, and progress towards projected EBITDA growth.
• Consider the stock's valuation, with Loop Capital's FY2025 target EV/EBITDA multiple of 6.5x appearing attractive relative to the current 10.03x LTM multiple, while also factoring in the execution risks associated with the company's strategic initiatives and expansion plans.