Nomura Securities on Retail: Recap - High Quality Month Equal Tailwind to Q3 (GPS, JWN, LTD)

August 31, 2012 9:16 AM EDT
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Price: $24.15 --0%

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Nomura Securities on Retail: Recap - High Quality Month Equal Tailwind to Q3

Analyst, Paul Lejuez, said, "Retailers reported a generally strong August, with most finishing a bit higher that what we had expected. Following August sales reports, we are raising our price target at The Gap (NYSE: GPS), and adjusting our estimates at Limited (NYSE: LTD). Our estimates at Ross Stores (Nasdaq: ROST), TJX Cos (NYSE: TJX), Wet Seal (Nasdaq: WTSLA), Kohl's (NYSE: KSS), Macy's (NYSE: M), and Nordstrom (NYSE: JWN) remain unchanged.

Gap (NYSE: GPS): We are raising our F12E from $2.25 to $2.32, and our F13E from $2.45 to $2.65. We are also raising our price target from $28 to $32, which reflects 12.1x our new F13E of $2.65.

Limited (NYSE: LTD): Our F12E and F13E remain unchanged at $3.02 and $3.50, although we adjusted our quarterly results

Nordstrom (NYSE: JWN), a strong start in August sets the stage for higher EBIT margins in 3Q. The stock trades at 6.3x our F13E EBITDA, and we believe the valuation is attractive for this strong retail franchise that enjoys one of the highest ROIC in our coverage group. Trading at ~5.6x our F13E EBITDA, with a double-digit FCF yield, and numbers going higher, we believe this stock will continue to work.

Top Picks still Nordstrom (NYSE: JWN) and American Eagle (NYSE: AEO)

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