KeyBanc on Consumer/Homefurnishing Retail: Outlook Positive, But Risk From Amazon (AMZN)

KeyBanc on Consumer/Homefurnishing Retail: Outlook Positive

Analyst, Bradley B. Thomas, said, "In light of housing and home furnishings industry data that continues to exhibit strength, we are reiterating our positive outlook for the home furnishings sector, which we believe is still in the early innings of a multi-year recovery. Housing turnover, which leads home-related spending by several quarters, has grown 10.7% on average over the last seven months. Furthermore, the home furnishings industry remains in its early innings as current spending levels are still 18% below the prior peak and just 11% above the 2009 trough. In our view, the biggest risk facing furnishings retailers is Amazon (Nasdaq: AMZN), which forces us to recommend selectivity in the group. Our top picks within the sector are Cost Plus, Inc. (NASDAQ: CPWM)(price target of $21) and Pier 1 Imports, Inc. (NYSE: PIR), and we are raising our price target for PIR to $21 from $19 today. These companies combine strong top-line momentum with margin upside and provide a level of insulation from Amazon due to their proprietary merchandise. Value investors may consider Kirkland’s, Inc. (Nasdaq: KIRK), which is the least expensive stock in the sector, at an EV/EBITDA of 5.0x 2012. We currently rate KIRK a HOLD, but would look to get more positive if recent improvements in comps continue. Despite our positive industry view, we recommend investors avoid Bed Bath & Beyond Inc. (Nasdaq: BBBY) and Williams-Sonoma, Inc. (NYSE: WSM) given their greater exposure to Amazon within branded and commodity-product categories."

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