BofA Downgrades Latham Group Citing Weak Pool Construction Market

Latham Group (NASDAQ: SWIM), a prominent player in residential swimming pool construction, faced a setback as Bank of America downgraded its stock due to concerns over sluggish new pool construction and increased decrementals.

With the downgrade, SWIM’s stock plummeted by 23.78% during pre-market trading on Wednesday, settling at $2.50, marking an 11% dip below its 200-day simple moving average.

Bank of America revised its recommendation on Latham Group stock to Underperform, slashing the price target from $4.50 to $2.60.

In its 2024 guidance announcement, SWIM projected revenues between $490M and $520M, falling short of the consensus estimate of $533.09M. Similarly, adjusted EBITDA guidance ranged from $60M to $70M, representing an 8% to 35% decrease compared to previous expectations.

The downgrade stems from a sluggish start to 2024, subdued projections for new pool construction, operational challenges leading to deleverage, and constrained free cash flow.

Management anticipates a 15% year-over-year decline in new pool construction for 2024.

These developments contrast with the optimistic sentiment among some sell-side analysts, who maintain a Buy rating on SWIM with an average price target of $3.54.

Scott Rajeski, President and CEO, stated, “Latham navigated a very difficult market environment in 2023. We successfully implemented cost reduction programs and lean manufacturing initiatives that structurally reduced our cost basis, while maintaining our investments in future growth. These cost reduction programs improved margins as the year progressed and we expect they will enable us to considerably expand margins and overall profitability once volumes recover. At the same time, we increased productivity and efficiency for our dealers, developed new fiberglass pool models, and invested in digital tools that have enhanced the consumer’s pool buying experience. As a result of these actions, Latham is positioned for meaningful market share gains as overall industry conditions improve.”