MKM Partners analyst David Bellinger told clients on Tuesday that much of the downside risk for Mister Car Wash ( NYSE: MCW ) is mitigated after a steep fall in the past month.
Shares of the Tucson, Arizona-based car wash business have fallen over 50% in 2022, marking a double-digit decline in just the past month. Bellinger explained that while the sector was buoyed by bullish market sentiment in recent years, the rapid rise in costs and pressures on consumers has hit the stock hard in recent months. Additionally, rising costs for labor, chemicals, and rent has added to bottom line concerns that exacerbate debt issues.
However, the stock may be nearing its trough, according to Bellinger.
“Our analysis implies a substantial amount of downside is baked in at this point, yet we
still see the shares under near-term duress,” he wrote.
Nonetheless, he indicated his team is not comfortable recommending the stock at present given consumer spending dynamics at present. Additionally, pricing pressures still remain a significant overhang on the name.
“We do not see the underlying MCW model as impaired, but working through a near-term reset period,” Bellinger said. “This business is not recession-resistant, although the exterior express wash model is likely to fare better than other full-service wash options.”
He assigned a $9 price target to the stock and initiated it at a “Neutral” rating. Shares of Mister Car Wash ( MCW ) rose 3.9% on Tuesday.
Read more about the company’s recent inclusion in a new index .
For further details see:
Large degree of downside baked in for Mister Car Wash - MKM Partners