By IPO Edge Editorial Staff
Leading analyst Matthew Boss at JPMorgan has raised his price target on top bowling center operator Bowlero Corp. (NYSE: BOWL) to $20, citing economic resilience, margin expansion and robust M&A opportunities.
Bowlero, which trades around $15, is one of the very best performing IPOs in recent years. The company has captivated investors thanks to its healthy cash flow and strategy of consolidating the highly fragmented bowling industry.
In his upgrade note, Mr. Boss focused on several factors. First, he points out that a bowling experience is dramatically less expensive than other family entertainment options such as theme parks, which come with travel, hotels and expensive tickets. Even in the severe downturn of 2008-2009, bowling centers fared much better than most as families sought affordable entertainment.
He also emphasized generational tailwinds working in Bowlero’s favor. “CFO Parker cited Gen-Z is proving to be more active than Millennials with a continued secular push from goods to service among the younger generation with increased value on community, physical activity, and dynamic experiences,” Mr. Boss wrote.
Bowlero, which is by far the largest bowling center operator, still has room to acquire smaller companies. “Management sees ~1,500 (or >40%) of the market as ‘high quality acquisition’ targets for Bowlero to apply its proven operating model,” Mr. Boss wrote. The company sees Bowlero adding at least 10-15 units annually to the fleet as a minimum base case.
There’s also opportunity to drive gross margin to the high 30s from the current level in the low 30s. That should come as a result of strategic price increases (which haven’t triggered significant customer pushback) and cost reductions.
Finally, Mr. Boss said senior management envisions EBITDA margin expansion of 20-30 basis points annually with 12%-15% revenue increases annually.