On Tuesday, DA Davidson adjusted its stance on Citi Trends (NASDAQ:CTRN), reducing the retailer's price target to $20 from the previous $33, while still endorsing the stock with a Buy rating. The firm highlighted the company's ongoing efforts to revitalize its business, spearheaded by interim CEO Ken Seipel. The strategy is primarily focused on enhancing the product lineup and refining operational processes.
Citi Trends is currently facing a downturn in store sales, which have dropped by 10% compared to pre-pandemic figures, averaging $1.25 million. Additionally, the company's EBITDA margins stand at a modest 0.4%, after accounting for certain one-time expenses.
Despite these challenges, DA Davidson pointed to Citi Trends' robust balance sheet and the support of a significant shareholder as key factors that afford the company time to implement its recovery strategy.
The firm underscored the retailer's potential as a S.T.A.M.P.E.D.E. special situation, citing the change in management as a primary catalyst for the company's prospective growth. Another aspect that could drive the stock's performance is the notable 36% short interest, which may act as a positive influence on the share price.
DA Davidson's revised price target of $20 is based on an anticipated enterprise value to EBITDA multiple of 15 times, as projected for the year 2026. Despite the price target reduction, the firm maintains a positive outlook on Citi Trends' shares.
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