Wall Street analysts are growing increasingly optimistic on auto parts maker Holley . JPMorgan’s Christian Carlino and Bank of America’s Alexander Perry upped their ratings to overweight and buy, respectively, from neutral on Wednesday. Carlino’s $7 price target implies an upside of 59.1% from Tuesday’s close, while Perry’s $6 forecast would mean shares rise 36.4%. Shares of the company — which is known for its design, marketing and manufacturing of performance automotive aftermarket products and mainly targets car fans — jumped more than 20% in Wednesday’s session. That rally put shares within about $1 and $2 of Perry’s and Carlino’s targets, respectively, meaning some of the upside may now already be accounted for if the gains remain. HLLY 1D mountain Holley While noting the stock is “back on track,” Carlino said his upgrade is based on the potential to beat the conservative guidance given for 2023 and 2024. There’s also potential for margin as the company takes back manufacturing and distribution costs in a better pricing environment going into 2024. Growth and the reduction of debt should also help leverage ratios, he said. These expectations come as Holley trades at a price-to-earnings ratio below that of peers, Carlino noted. And he said management reported healthy inventory and spot chip procuring at meetings with the firm. Meanwhile, Bank of America’s Perry pointed to strong web traffic for Holley.com and resellers, which he said could be a sign of upside to second-quarter revenue. JPMorgan’s Carlino left his second-quarter expectations unchanged, while increasing estimates for 2024. Beyond that, Perry said recent cost cuts should help operating leverage come in stronger than anticipated, while also saying improvements in sourcing for products used for fuel injection should help optimize consumption, which can, in turn, help margins in 2024. “We rate HLLY shares Buy as alternative data including web traffic implies near term revenue upside, and new innovation in Electronic Fuel injection should support gross margin expansion,” Perry said, while noting the company is “firing on all cylinders. “We also see further margin expansion from HLLY’s new freight agreement and benefits from its recent headcount reduction.” Both analysts noted the Sniper 2.0 fuel injection product, which is slated for release in the second half of 2023, as a potential catalyst for the stock, with Carlino calling the launch “a product cycle turning point.” Electronic fuel injection is one of the company’s largest businesses, accounting for 15% of sales, Perry said. Despite the bullish turns from two major Wall Street names, not every analyst is as optimistic. Half of analysts rate the stock a buy or equivalent rating, while the other half have hold ratings, according to Refinitiv. The average analyst anticipates shares could tumble nearly 20% over the next year after surging more than 150% so far in 2023. — CNBC’s Michael Bloom contributed to this report.
