Goldman Sachs Doesn't See Catalysts for DSW Inc. (DSW) Despite Lower Valuation

Goldman Sachs maintained a Neutral rating on DSW Inc. (NYSE: DSW) and reduced its price target to $27.00 (from $36.00). Analyst Taposh Bari said capitulation in the stock creates a valuation case, but he doesn't see catalysts.

"DSW reported a 1Q EPS miss ($0.42 vs. $0.48/$0.50 GS/consensus) and lowered its FY14 EPS outlook by 19%. The stock reaction, down 27%, points to investor capitulation with P/E now at 15.5x the $1.53 new midpoint of guidance. This is the stock’s lowest P/E on both an absolute and relative basis since 2011. DSW traded as high as 21.5x in December 2013 when it reached an all time high of $48 (it has since declined 50%). Notwithstanding the stock’s correction which, along with a 3% forecast dividend yield, creates a compelling valuation case, a lack of near-term catalysts precludes us from taking a more constructive stance. As such, we remain Neutral, albeit with modest 14% potential upside to our new $27 12-month price target," said Bari.

"We believe DSW now qualifies as a 2H recovery candidate joining a growing set of retail companies. Discounted valuation, new merchandising initiatives and more realistic guidance create disproportionate upside if when sales positively inflect. We currently prefer ASNA (Nasdaq: ASNA) and SHOO (Nasdaq: SHOO), two 2H recovery stories with more attractive risk reward in our view," added the analyst.

For an analyst ratings summary and ratings history on DSW Inc. click here. For more ratings news on DSW Inc. click here.

Shares of DSW Inc. closed at $23.62 yesterday.

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