TTC - The Toro Company: Answers The Shorts But Still Not Cheap

2024-06-07 05:03:13 ET

Summary

• Toro stock dropped after a short report raised concerns about inventory buildup in the dealer channel, but rebounded after 2Q earnings.
• The company appears to be managing the dealer channel inventory destocking and phase-out at Home Depot with little hit to sales.
• Although short seller worries have been addressed, slower growth and margin pressure going forward makes TTC stock a Hold around $90.

Short Thesis Not As Dire As It Sounded

The Toro Company ( TTC ) stock experienced a big swing over the last couple of weeks. It closed at an even $90 on May 20, about the middle of the range it had been trading in since suffering an earnings miss and FY 2023 guidance reduction in September 2023 . On May 21, a short report was issued by Jehoshaphat Research warning of further trouble ahead. While several topics were addressed, there were two points that were the most persuasive. First, receivables owed to Red Iron, Toro's dealer floor plan financing JV with Huntington Bank ( HBAN ), had increased considerably. This was seen as an indicator that the dealer channel was overstocked, and future sales had to come down to help clear this inventory. Second, while Toro recently began selling products at Lowe's ( LOW ), they appear to be in the process of getting phased out at Home Depot ( HD ). Toro stock traded down below $79 by the end of May as investors awaited the fiscal 2Q earnings release ....

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