On Wednesday, BofA Securities adjusted its stance on Latham Group Inc. (NASDAQ: SWIM), moving the rating from Buy to Underperform. The firm also revised its price target for the company's stock, setting it at $2.60, a decrease from the previous $4.50 target.
The downgrade was prompted by Latham Group's initial guidance for 2024, which indicated both revenue and adjusted EBITDA figures below expectations. The revenue forecast ranged from $490 million to $520 million, and the adjusted EBITDA was projected to be between $60 million and $70 million. These estimates are approximately 8% and 35% lower, respectively, than what was previously anticipated by BofA Securities.
BofA Securities cited several reasons for the downgrade, including a disappointing start to 2024, scaled-back projections for new pool construction in the year ahead, operational inefficiencies leading to operating deleverage, and concerns regarding the company's ability to generate free cash flow.
In response to these factors, BofA Securities has reduced its adjusted EBITDA predictions for Latham Group for the years 2024 and 2025 by 36% and 31%, respectively. The new price objective of $2.60 is now based on a 6.0X multiple of the firm's expected 2025 enterprise value to EBITDA, a decrease from the previous 7.0X multiple of the 2024 estimate. This adjustment also reflects a forward-looking approach to valuation multiples, taking into account the company's dimmer growth prospects.
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