The Dave & Buster's Analyst: Andrew Strelzik upgraded Dave & Buster's from Market Perform to Outperform with a price target lifted from $17 to $26.
The Dave & Buster's Thesis: Dave & Buster's move to bolster its liquidity "removes our primary concern" as the company is now sitting on around two years of liquidity at its current cash burn rate, Strelzik wrote in the note. Encouragingly, the company is showing improving metrics and the debt shouldn't be considered a risk.
Most notably, 65% of open stores showed a positive store-level EBITDA in September. A similar 65% of stores also showed accelerated same-store sales in September.
Strelzik said some of the stores that opened earlier are approaching 100% of pre-pandemic sales levels.
Looking forward, the company is likely to emerge from the pandemic facing less competition and should by default gain incremental sales. Additional potential catalysts include progress on the stimulus front from Washington, a vaccine against the coronavirus, and re-opening of California locations.
Finally, the research firm's revised $26 price target assumes 85% of pre-pandemic EBITDA levels but the stock has incremental upside to $35 if the company fully recaptures prior peak EBITDA levels
PLAY Price Action: Shares of Dave & Buster's were trading higher by 5.7% Tuesday at $18.36.
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