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Have you ever considered Pier 1 as a deep value play?

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The analyst assumes a minimum 1.5x coverage ratio, beginning debt to EBITDAR of 5x to 6x and approximately 30 percent equity-to-cap. In addition, a return on equity of 15 percent is set as a minimum.


The analyst also assumes a bank debt carries a rate of LIBOR plus 350, or about four percent, and that high yield debt carries a rate of eight percent.


“Recently, however, we believe investors have moved a bit more to the aggressive side, accepting either less equity (so more levered) or traditional leverage metrics less stringent than historically speaking, so we also run our leveraged buyouts with a coverage ratio under 1.5x, adj debt to EBITDAR above 6x and only 20 percent equity-to-cap,” the analyst wrote before concluding “we believe a buyer could pay between $17 to $17.50 for the company.”

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