AmTech Upgrades Blue Nile (NILE) to Neutral; Cuts PT to $25

October 29, 2008 11:53 AM EDT

American Technology Research upgrades Blue Nile (Nasdaq: NILE) from Sell to Neutral but lowers its price target from $28 to $25. The firm calls Blue Nile a best-in-breed play.

The firm attributes the upgrade to 7 key reasons:

• Believes the market has already priced in material downside guidance for Q4 and incremental downward revisions to FY09 consensus estimates. As the Street has already reduced its FY09 sales and earnings estimates by about 25%, even if estimates are still too high, AmTech believes that the majority of estimate revisions have already passed.
  
• Blue Nile's current forward P/E of 25x represents a 2 standard deviation move from the stock's lifetime average foward P/E of 48x.
  
• AmTech believes that if Blue Nile's inventory days are at or near a peak, its payable days do not contract substantially from here, and that management does not increase capex spending, free cash flow growth could materially outpace revenue, EBITDA and EPS growth over the next 3 years. The firm points out that this could be a positive as many long-term investors value Blue Nile based on free cash flow.
  
• About 46% of Blue Nile's float is shorted, meaning that the stock could see a short-squeeze in the event of surprise earnings/guidance.
  
• The stock is a high-beta stock (1.5) and "appears ripe for a significant bear-market rally."
  
• Blue Nile has very little direct exposure to foreign currencies.

Shares of Blue Nile are currently up about 12% from yesterday's close. The stock most recently traded at $27.94.

Blue Nile, Inc. operates as an online retailer of diamonds and fine jewelry in the United States, the United Kingdom, and Canada.

Related Categories

Upgrades

Stocks Mentioned

Related Entities

• UBS
• American Technology Research

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?