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Reiterating his Buy rating for Citi Trends, Inc. (CTRN), Zacks senior retail industry analyst Robert Plaza, CFA explains why the future looks bright for the specialty retail chain:
'Citi Trends has had a difficult year that has been riddled with expense and inventory issues and disappointing quarterly results. In its third quarter report, the company again lowered its full-year EPS guidance to $0.91-$0.96, but there are a few positives going into fiscal year 2008.
'Management indicated that it has its payroll expenses under control, and that its aggressive markdowns in Q3 reduced its inventory to more manageable levels. Overall inventory was up 26% year-over-year, but was up 8% on a comp-store basis. We are reducing our 2007 EPS to reflect the company's lower outlook, and reducing our 2008 estimates to reflect our view that CTRN will scale back its store growth to focus on improving margins.
'We maintain our Buy rating on Citi Trends because of its appealing sales niche, strong double-digit growth potential, and an attractive valuation. However, we lowered our target price from $32 to $25, which is about 18x our 2008 EPS estimate. CTRN shares are attractively-priced at 15.8x our fiscal year 2007 EPS estimate and 12.8x our fiscal 2008 EPS estimate. This is well below our 25% estimate of its long-term earnings growth.
'We think the company's long-term growth potential warrants a premium price-to-earnings multiple. Even so, the company's recent earnings disappointments, which were due to lack of expense and inventory controls have reduced investor confidence in the company. As a result, our six-month target price is $32, which represents a P/E-to-growth ratio of 0.75x our 2008 EPS estimate.'
Read the full analyst report on CTRN.
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