Fox Factory: Stifel upgrades rating to 'buy' on bike business recovery view

Stifel has upgraded shares of Fox Factory Holding Corp (NASDAQ:FOXF ) to a “Buy” rating as it sees the current valuation as an attractive entry point, citing a favorable risk reward balance.

There is potential for sentiment to improve in 2025, driven by recovery in FOXF’s high-margin bike business, Stifel analysts said in a note.

Stifel maintains a price target of $40 for Fox Factory, and upgrades stock rating to "Buy" from "Hold".

Following seven consecutive quarters of disappointing guidance revisions and a weak preliminary FY25 outlook, FOXF shares have struggled. However, Stifel believes the sharp sell-off, partly influenced by tax-loss selling and tariff concerns, creates a compelling opportunity for long-term investors.

The Bike category, which represents 57% of FOXF’s estimated profit recovery in FY26, is central to Stifel’s optimistic outlook, Stifel analysts said. After two years of inventory destocking, the Bike business has started to recover, with Q3 revenue reaching $100 million.

Stifel projects a $400 million normalized annual revenue run rate for the category, driven by price increases, e-bike contributions, and a potential shift from dealer destocking to restocking by late 2025. At this level, the bike segment could generate over $110 million in earnings, significantly above 2024 expectations, according to Stifel.

While other divisions—Powered Vehicle Group (PVG) and Advanced Actuation Group (AAG)—face ongoing challenges, Stifel sees stabilization on the horizon by mid-2025. Expected cost savings of $25 million and a possible demand recovery could unlock margin improvements in the second half of 2025, analysts added.

The brokerage said that the current levels present an opportunity to build positions in FOXF shares, with limited downside and the potential for recovery as business fundamentals stabilize.

Source: Investing.com