Get Comfortable With At Home Group In Your Portfolio

Tailwinds Drive At Home Group To New Highs 

The COVID-19 pandemic was transformational for many companies and At Home Group (NYSE: HOME) is one of them. Not only did the pandemic put the At Home Group market into capitulation after a year of down-trending but it also spurred demand from products and accelerated growth. The end result was a great company in perfect position for the pandemic with a stock trading at such a low price it was begging investors to buy it. Now, a year into the pandemic with tailwinds driving the market shares of At Home Group are up 2400% and heading higher. We think much higher. 

At Home Blows Away The Consensus, Outlook Positive 

At Home Group had a great quarter and one that proves eCommerce isn’t everything. While the company does have an eCommerce presence it is not a major focus or significant enough source of revenue to be broken out statistically for investors. That said, the $561.99 million in Q4 revenue is up 41.3% from last year and beat the consensus by 700 basis points. The revenue is higher sequentially and the highest of the year with YOY growth holding steady in the 40% to 50% range as well. When adjusted for the extra 13th week in the 2020 Q4 period revenue is up 33% while on a comp basis, not including new stores, sales are up 30.8%. 

Moving down the report the details get even more impressive. The company’s gross margins increase by 1020 basis points on product margin and fixed-cost leverage to drive a 94% increase in EBITDA. On the bottom line but GAAP and adjusted earnings grew from last year and beat the consensus, the GAAP $1.08 by $0.44 and the adjusted $1.08 by $0.38. 

Perhaps the best news is that this money is not going to waste. The company used some of its earnings to pay down debt leaving the short-term revolver with a $0.00 balance and long-term debt at $314 million. At this level, the company’s leverage ratio is reduced to 0.5X earnings compared to 3.2X earnings leaving plenty of cash flow to fund the expansion plans. The company says it is back on track with its goal to reach 600 stores and will resume openings this year. There were no openings in the FQ4 period but the net count is up 7 from last year.

No Guidance But At Home Gives Positive Outlook 

The company did not give any guidance but left us feeling very good about 2021. With clear strength in the revenue and earnings figures, a fortress balance sheet, and strong tailwinds to drive its growth, we think At Home Group can sustain a double-digit growth beyond the pandemic effect albeit at a slower pace than current. 

As for calendar 2021/fiscal 2020, the analysts are expecting this company to deliver flat to slightly down earnings and we think that is far too conservative. Because there’ve not been many analysts updates over the last six months we expect to see that outlook change very soon. Wells Fargo is the first to come out with a bullish call on the stock but even they are still being cautious. The analysts are maintaining an equal weight rating but raised the price target to $30 from $25, still only in-line with the current price action. 

The Technical Outlook: Bullish With An Another Tailwind To Drive It Higher 

We think this stock is about to see a round of analysts upgrades and price target hikes that will only add strength to the tailwinds that are already driving this stock. With share prices trading downward following the earnings release we can only view the price action as a buying opportunity. The near-term trend is down so there is a chance price action could move down to test support near the $28 level but we expect to see buyers step in if it does. Longer-term, we expect to see At Home Group move up to set new highs above $34.50 and then new all-time highs above $41.