Analyst ups his price target on KITS Eyecare

Ventum Capital Markets analyst Devin Schilling raised his price target on KITS Eyecare (KITS Eyecare Stock Quote, Chart, News, Analysts, Financials TSXV:KITS) to $18.00 from $16.00 in a May 27 note, reiterating his “buy” rating and calling the company a “must-own name” following investor meetings that reinforced confidence in its growth and execution strategy.

KITS is a Canadian company that sells eyeglasses and contact lenses online, handling the entire process from production to delivery.

The company has averaged 32% revenue growth per quarter over the past 10 quarters and increased its EBITDA margin from 1.7% to 7.4% during that period.

“As impressive as this is, we see the growth trajectory continuing with expectations that KITS will approach C$250M in revenue by 2026 and C$500M by 2029,” Schilling said. “Furthermore, we also see EBITDA margins trending to 10% over the medium term and surpassing 15% by 2029, driven by an improving product mix and further operating leverage. KITS believes that higher margin glasses will eventually represent 30-40% of the product mix (up from 14% today).”

Schilling thinks that Kits will generate $11.3-million in Adjusted EBITDA on revenue of $200.0-million in fiscal 2025. He expects those numbers to improve to $14.9-million in EBITDA on $236.6-million in revenue in fiscal 2026.

Macro challenges are creating opportunities, Schilling said, and KITS plans to use the current economic climate to gain market share by appealing to more value-conscious customers.

“In doing so, KITS will increase marketing spend in Q2, which is anticipated to reduce EBITDA margins during the upcoming quarter,” he said. “We note that new customers tend to be lower margin for KITS at the onset but often repeat purchase with higher average order values and more favourable margins over the longer term. We are supportive of this strategy and see potential upside to our H2 EBITDA margin forecast of 5.6%.”

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