Dave & Buster’s Entertainment Inc. (PLAY.O) shares tumbled as much as as 20 per cent as several analysts cut their rating following a surprise decline in quarterly comparable sales and a reduced forecast for the key metric.

"Investor confidence has been rattled -- and we believe it will take several quarters for management to rebuild," Gordon Haskett’s Jeffrey Farmer wrote.

Ahead of the results, Wall Street took a game-on stance, with 11 buy-equivalent ratings. However, following the first-quarter results, the stock now carries 8 buy ratings, 3 holds and zero sells. And the 12-month average price target has sunk to US$54 a share vs nearly US$64 a week ago, according to Bloomberg data.

Shares are trading at US$41.75 as of 9:44 a.m., the lowest intraday level in more than a year.

Embedded Image

Here’s what Wall Street is saying this morning:

Gordon Haskett, Jeffrey Farmer

Downgrades to hold from buy, price target to US$48 from US$61, with “several key components of our bullish thesis on the name coming under pressure.”

The return of a sustained run of positive comparable sales growth this year now appears to be a “very long shot” given the first-quarter decline, news that comps. have been “choppy” in the early weeks of second quarter and the fact that same-store sales comparisons get “increasingly challenging.”

“PLAY’s guidance reliability/credibility was tested for the third time in the last 18 months.”

A near doubling of long-term debt since the fiscal first quarter of 2017 puts pace of share repurchases at risk for slowdown.

While the stock is trading at a “near 5-year trough valuation level,” there are no near-term comp sales or EPS drivers, so a multiple expansion is unlikely any time soon.

SunTrust Robinson Humphrey, Jake Bartlett

Downgrades to hold from buy, price target to US$47 from US$64.

“We continue to expect a SSS headwind of ~400bps from competition and cannibalization, but no longer expect PLAY’s efforts to offset it.”

“The sharp deceleration in SSS in the back half of 1Q19, slow start to 2Q19 and increasingly difficult year-ago compares shakes our confidence that PLAY will generate positive SSS” this year.

“Without positive SSS, we no longer expect multiple expansion, despite strong development.”

Wells Fargo, Jon Tower

Downgrades to market perform from outperform, price target to $48 from $65 given "our lowered confidence in the company’s ability to sustainably drive SSS growth without additional margin erosion.”

While the company’s strategy to drive new store growth vs. focusing the majority of its energy on same-store sales growth is ultimately the proper business decision, "we believe that public equity investors will continue to not recognize this value driver without the two engines firing simultaneously.”

“With the 1Q miss, lowered FY19 guidance & cautious commentary regarding F2QTD trends, our (and likely investor) conviction in SSS visibility has faded.”

Meanwhile, most analysts have decided to stick with their bullish stance on the shares, although price targets have been reduced. Some comments follow:

  • Jefferies: buy, price target to US$56 from US$60; “some bumps on road to recovery, but valuation to attractive to miss”
  • Maxim: buy, price target to US$62 from US$67; “we remain encouraged that virtual reality (VR)-related traffic will support full-year EPS at or above the high end of reduced guidance”
  • Raymond James: outperform, price target US$50 from US$60; 1Q results and year forecasts disappoint, but “pullback overdone”
  • William Blair: outperform (firm has no price targets): “Competitive intrusion” is frustrating, but “we believe guidance is achievable on similar two-year comparisons throughout the year” and valuation is “low relative to a peer group average”