Wedbush Upgrades Jo-Ann Stores (JAS) to Outperform; Better Visibility and Favorable Tailwinds Into at Least 2012

November 6, 2009 9:32 AM EST

Wedbush upgrades Jo-Ann Stores (NYSE: JAS) from Neutral to Outperform, price target increased from $30 to $37.

Wedbush analyst says, "Upgrading shares of Jo-Ann Stores to Outperform from based upon increased visibility for near and long-term earnings power driven by strong internal execution and favorable external factors. Comp momentum is accelerating despite the challenging environment due to strong internal execution, including benefits from remodels and optimizations, fresh product, and improved forecasting and replenishment. We believe external factors have also been very favorable, including positive industry trends in the sewing business & home nesting, as well as ongoing share gains from Wal-Mart exiting the fabric business, both of which are providing tailwinds to sales, which we expect to continue at least through 2012. Beyond strong sales, the company has been able to achieve improved gross margins through more direct sourcing as well as better merchandise buying and markdown management. SG&A has been managed well with ongoing opportunities to reduce labor and occupancy costs going forward and achieve good leverage on positive sales results. These favorable operating trends should continue at least into 2012 and result in strong earnings power and outperformance of its peers...We had already been Street high and still raising our forecast beyond guidance for the year to $2.06 (from $1.60) on comps of 3.0%. We are assuming the company can generate BTE gross margin and lower SG&A in 2H. We also raise our FY11 EPS forecast to $2.30 (from $1.90)."

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