Children’s Place stock downgraded to sell, price target to $4 By Investing.com

Tuesday, B.Riley downgraded The Children’s Place (NASDAQ:) shares from Neutral to Sell, significantly reducing the price target to $4 from the previous $19. The decision comes amid concerns over the company’s financial health and the potential for unfavorable outcomes for equity holders.

The downgrade reflects the firm’s analysis of The Children’s Place’s current financial situation, which includes a run-rate EBITDA of approximately negative $3.5 million and net debt around $265 million. The retailer also faces limited availability on its credit line and an estimated seasonal funding need of $50 million to $75 million. These challenges have been exacerbated by the company’s recent financial decisions made to maintain its credit agreement, which are not typically seen as beneficial for shareholders.

B.Riley’s revised valuation assumes The Children’s Place will generate $77 million in EBITDA for the fiscal year 2024 and will be able to raise $50 million in senior equity capital, leading to a 50% dilution of current equity. Based on these projections and a valuation of 4 times the estimated FY24 EBITDA, the firm estimates a share price of around $4 in the next 12 months and $11.31 in the following 24 months, based on an EBITDA estimate of $113 million for FY25.

The analysis suggests that there is a significant risk that The Children’s Place may not be able to raise capital on the terms projected, with a 50% chance of this outcome, and a 33% chance that the company will not achieve the $77 million EBITDA target for FY24. While there is a possibility of a favorable deal with Amazon (NASDAQ:) that could boost share prices to $19 in 2024 and $39 in 2025, the firm assigns less than a 10% probability to such an event. Given these factors, B.Riley sees a high probability of the share price reaching $4 or less in the next year and does not view the potential for upside as sufficient to outweigh the speculative nature of investing in the company at this time.

InvestingPro Insights

As The Children’s Place (NASDAQ:PLCE) navigates its current financial challenges, insights from InvestingPro provide a deeper look into the company’s recent performance and stock activity. With a PRONEWS24 coupon code, readers can access additional InvestingPro Tips that may further inform investment decisions.

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