FBR Capital Upgrades Ascena Retail Group (ASNA) to Outperform

FBR Capital upgraded Ascena Retail Group (NASDAQ: ASNA) from Market Perform to Outperform with a price target of $20.00 (from $12.00) following the acquisition of ANN.

Analyst Susan Anderson commented, "We upgrade shares of Ascena Retail Group (ASNA) to Outperform, from Market Perform, following its announcement it would acquire ANN and the negative stock reaction (~–1%) yesterday, May 18, that provides an attractive entry point. We believe the acquisition makes strategic sense, with limited overlap and the ability for ASNA to leverage its shared services platform. Most importantly, we think investors are underestimating accretion/synergy potential: We estimate the acquisition could be accretive by at least $0.05, versus our FY16 estimate absent of synergies (estimate post-acquisition FY16 EPS of $0.98, ex. synergies, versus current FBR ASNA estimates of $0.93), which provides a free option on synergies—and now ASNA/ ANN improvement is discounted. We think synergies of at least $25M are readily achievable in the first year, driven by overhead reductions, including potential consolidation of HQ offices (conservatively $17M in savings). Including synergies, we estimate post-acquisition FY16 EPS of $1.06 (14% accretion), FY17 EPS of $1.33 (versus current FBR estimates of $1.02), and FY18 EPS of $1.63 (estimated $25M/ $50M/$75M synergies in FY16/17/18). Further improvements in core ANN/ASNA businesses could be additional upside to these post-synergy estimates. (We were expecting improvement in both ANN/ASNA in 2H15.) We raise our price target to $20, from $12, reflecting a 20x multiple applied to our 2017 EPS estimate. (The multiple would be 15x with our estimated post-acquisition FY17 EPS estimate that includes synergies.)"

For an analyst ratings summary and ratings history on Ascena Retail Group click here. For more ratings news on Ascena Retail Group click here.

Shares of Ascena Retail Group closed at $14.07 yesterday.

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