PLAY - Dave & Buster's to face leverage headwind warns Wells Fargo

Wells Fargo cautions investors on the long-term setup for Dave & Buster's Entertainment ([[PLAY]] +1.8%) even with the reopening trade still buzzing. Analyst Jon Tower notes that the consumers are in a relatively solid spot, sitting on nearly $1.8T in "excess" savings with another round of stimulus checks currently hitting many consumers wallets. "However, while PLAY has stripped some costs from its business, unit growth will likely remain subdued until leverage obligations are met, which will weigh on top-line/FCF growth & should translate into a lower multiple vs. history. Lastly, we're still uncertain what >25% growth in spend in video game content in '20 (Exhibit 5) means for PLAY's already beleaguered SSS/traffic over time," warns Tower. Against that backdrop, Wells keeps an Underweight rating on PLAY and price target of $33 (28% downside). Dave & Buster's posts earnings tomorrow with options trading implying a double-digit move in share price.

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Dave & Buster's to face leverage headwind, warns Wells Fargo