Credit Suisse Downgrades Department Stores to Underweight (JWN) (DDS)

Credit Suisse reducing their Mall Anchor sector weighting from Market Weight to Under Weight. With the call the firm downgraded Nordstrom (NYSE: JWN) from Outperform to Neutral and Dillard's (NYSE: DDS) from Neutral to Underperform.

Analyst Michael Exstein notes capital expenditures for the group expected to reach peak '07 levels in '15. Also, tailwinds from FAB categories appear to be reaching an inflection point.

The analyst also sees more indications that mall anchors are approaching cyclical peak. "Historically, leveraging events have tended to precede cyclical peaks. With the mall anchor group in the midst of their sixth year of recovery, leveraging events such as accelerating capital spending, a step-up of M&A activity, and increasing speculation of real estate monetization are all forms of financial leveraging events."

Moreover, upside from current valuations appears limited. On a market-cap weighted FY1 EV/EBITDA basis, the mall anchors are trading at 7.4x, just 5% below the five-year high, the analyst notes.

Stocks of note:

• Bon-Ton Stores (NASDAQ: BONT)
• Dillard's (NYSE: DDS)
• J.C. Penney (NYSE: JCP)
• Kohl's Corp. (NYSE: KSS)
• Macy's (NYSE: M)
• Nordstrom (NYSE: JWN)
• Stage Stores (NYSE: SSI)
  

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