The Ratings Game: European Wax Center has plenty of room to grow and a business built on consistency, analysts say

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European Wax Center Inc. has plenty of room to grow, according to upbeat research groups that began coverage of the hair removal franchisee on Monday.

“Out-of-home waxing represents a ~$6 billion annual market today (projected CAGR +8%), expected to take increasing share within the larger ~$18 billion total hair removal space,” wrote Baird analyst Jonathan Komp in a note.

“We think European Wax Center can grow its current share of out-of-home waxing (~low-teens currently) by two-to-three times over time, aided near-term from market share opportunity given ~5% to 10% of direct competitor closures due to COVID and longer-term from increasing scale benefits.”

Baird rates European Wax Center
EWCZ,
-4.27%

outperform with a $30 price target.

For BofA Securities, predictability and consistency are positive attributes.

Read: European Wax Center’s clients are nearly all women, making men a target for growth at the newly public company

“We believe its large, underpenetrated total addressable market, high customer loyalty, and predictable revenue stream make this model compelling,” wrote Lorraine Hutchinson.

“At 14 months, franchisees recognize positive EBITDA [earnings before interest, taxes, depreciation and amortization], and by maturity at year five, franchisees typically generate $1 million in revenue, 22% EBITDA margin, and 60% annual cash-on-cash return. Not a single cohort has yet to reach a final point of maturation, with stores opened in 2010 still comping positively through 2019.”

BofA Securities rates European Wax Center buy with a $27 price objective.

“We expect the company to post double-digit top line growth for the foreseeable future through the expansion of the store base from roughly 800 to 3,000 over the next 10+ years and through increased velocity at its existing stores,” wrote Truist Securities.

Also: Amazon-backed EV maker Rivian files for confidential IPO

Truist rates European Wax Center buy with a $30 price target.

European Wax Center shares began trading on Aug. 5 after the initial public offering priced at $17 a share. The stock was at about $24 midday Monday, down 1.4% from Friday, but about 41% above the IPO price.

In comparison, the Consumer Discretionary Select Sector SPDR Fund
XLY,
+0.94%

has gained 0.7% since Aug. 5 while the benchmark S&P 500 index
SPX,
+0.54%

has advanced 2.3% over the same time.

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