Knobias Clip Report (12-26-2007)
Submitted By Knobias ClipReport
TUES: Bargain Retailer Could Be a Bargain for Investors
Wednesday’s session saw a light volume day turn red as news began to surface of lower than expected holiday sales numbers. Leading the path downward for retailers was Target, the nation’s second largest discounter, who warned on Monday that December sales at stores open at least a year, were running well below estimates.
According to MasterCard’s SpendingPulse, sales from Thanksgiving to Christmas Eve rose by 3.6% from last year. But the number is a bit misleading since gas and restaurant purchases are also included in the total. The sales data aggregates some 300 million debt and credit card purchases. Also contributing to the rise was the increased number of shopping days this year than last. 8 extra days were in this year’s shopping season, and when you back out the increases in gas and food prices from last year, holiday sales only gained some 2%, which is below the core rate of inflation. So is it possible that holiday spending was actually negative? Could be, and the market looks to have taken notice.
Target shares were down some 1.5%. Wal-Mart lost 1%. The trickle down had many small cap retailers suffering as well. Bon-Ton Stores, Inc. (BONT) continued their down trend losing an additional 7%.
One name has seen increased pressure from lower overall sales and the decline in the housing market. Tuesday Morning Corporation (TUES) shares were down 1.5%. The Company is a closeout retailer of upscale home furnishings, houseware, gifts and related items in the United States.
The Company recently cut their 2008 guidance due to the declining housing market. The new sales guidance range is approximately $40 million lower at $943 million to $955 million and the new EPS range of 58c to 65c is approximately 25c lower.
The news caused a litany of downgrades and estimate revisions by analysts. JP Morgan downgraded to Underweight, Piper Jafray cut to Neutral. Morgan Keegan dropped to Market Perform. Shares plummeted 26.8 % on the day of the guidance revision, but with these extreme low levels, the shares are trading at very attractive price to earnings levels. With average estimates of 57c for the year end, the price to earnings ratio is in the 8.8 area currently. With estimates of 63c for the 2009 fiscal year, shares are trading at a forward price to earnings ratio of 8.
Causing some of that discounted valuation was the fact that the CFO recently resigned after only 16 months on the job. Others feel a cut in the dividend, which is currently at 15.5%, is on the horizon while some feel that the current guidance is still a bit generous with the Company’s C-List real estate locations.
In any event, with any bounce in the housing market, the shares could see some rapid appreciation as new home buyers look to stock their new dwellings with cheaper furnishings. Also, with any meeting of estimates or guidance in coming quarters, valuation levels would certainly appear on bargain hunter investors’ screens, especially with a continuation of the current dividend. With that in mind, investors willing to weather the housing market storm and the downturn in consumer spending could definitely do worse when inspecting names in the downtrodden retail sector.
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