FBR Capital on Dept Stores: The Dog Days Are Coming and the Group Is Coming Undone
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Price: $3.15 +3.62%
Rating Summary:
5 Buy, 10 Hold, 0 Sell
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
5 Buy, 10 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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FBR Capital on Dept Stores: The Dog Days Are Coming and the Group Is Coming Undone
FBR analyst said, "May was bleak. Many retailers missed numbers. Several noted weakness in the back half. Weather was a challenge: cold, wet, and stormy. Also gas and food prices appear to be weighing on the low-end consumer. Typically the group sells off from June through September. We seem to be in the early days of such a sell-off. The bigger question seems to be whether the economy could be headed for a more significant slowdown and what impact that will have on consumer spending. The stocks have outperformed longer and stronger on recovery than many anticipated. Of course when investors worry, there is a pile-on effect whereby things that were previously dismissed are suddenly huge concerns. Sourcing costs are still an issue and visibility is still limited. So what to do now? We see four options: 1) close our eyes through the paid and defend the idea of buying on dips and owning stocks for the long term (Ver Bradley (Nasdaq: VRA)); 2) sell momentum names and refocus on value stocks (American Eagle (NYSE: AEO)); 3) focus on reasonably priced high-end and/or share gainers (Macy's (NYSE: M), AnnTaylor (NYSE: ANN), Chico's (NYSE: CHS)); or 4) take the other side of the trade and just look for stocks with potentially more downside (Lululemon (Nasdaq: LULU)) (if you are into that sort of thing)."
Macy's (Outperform rated) - We are maintaining our 2Q11 EPS estimate of $0.40 as well as our CY11 EPS estimate of $2.48. We are also maintaining our CY11 sales estimate of $26.163 billion. PT $34.
J.C. Penney (NYSE: JCP)(Market Perform) - We are maintaining our 12-month price target on JCP at $35. We base our estimate on 4.8x CY12 EBITDA and 12.3x CY12 EPS, in both cases adjusted to exclude pension expense. The peer group is currently trading at 11.9x for CY12.
Nordstrom (NYSE: JWN)(Market Perform) - We are maintaining our price target at $50 based on 15.6x our CY12 EPS estimate, above the department store average of 11.9x.
Kohl’s, Inc. (NYSE: KSS)(Market Perform) - We are maintaining our 12-month price target at $55 based on an 11.2x multiple of our CY12 estimate. This is below KSS's historical multiple of 17.5x and below the department store average of 11.9x.
FBR analyst said, "May was bleak. Many retailers missed numbers. Several noted weakness in the back half. Weather was a challenge: cold, wet, and stormy. Also gas and food prices appear to be weighing on the low-end consumer. Typically the group sells off from June through September. We seem to be in the early days of such a sell-off. The bigger question seems to be whether the economy could be headed for a more significant slowdown and what impact that will have on consumer spending. The stocks have outperformed longer and stronger on recovery than many anticipated. Of course when investors worry, there is a pile-on effect whereby things that were previously dismissed are suddenly huge concerns. Sourcing costs are still an issue and visibility is still limited. So what to do now? We see four options: 1) close our eyes through the paid and defend the idea of buying on dips and owning stocks for the long term (Ver Bradley (Nasdaq: VRA)); 2) sell momentum names and refocus on value stocks (American Eagle (NYSE: AEO)); 3) focus on reasonably priced high-end and/or share gainers (Macy's (NYSE: M), AnnTaylor (NYSE: ANN), Chico's (NYSE: CHS)); or 4) take the other side of the trade and just look for stocks with potentially more downside (Lululemon (Nasdaq: LULU)) (if you are into that sort of thing)."
Macy's (Outperform rated) - We are maintaining our 2Q11 EPS estimate of $0.40 as well as our CY11 EPS estimate of $2.48. We are also maintaining our CY11 sales estimate of $26.163 billion. PT $34.
J.C. Penney (NYSE: JCP)(Market Perform) - We are maintaining our 12-month price target on JCP at $35. We base our estimate on 4.8x CY12 EBITDA and 12.3x CY12 EPS, in both cases adjusted to exclude pension expense. The peer group is currently trading at 11.9x for CY12.
Nordstrom (NYSE: JWN)(Market Perform) - We are maintaining our price target at $50 based on 15.6x our CY12 EPS estimate, above the department store average of 11.9x.
Kohl’s, Inc. (NYSE: KSS)(Market Perform) - We are maintaining our 12-month price target at $55 based on an 11.2x multiple of our CY12 estimate. This is below KSS's historical multiple of 17.5x and below the department store average of 11.9x.
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