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After hitting an all-time high in October the share price of teen specialty retailer Zumiez, Inc. (ZUMZ), has declined 47%, but Zacks senior retail sector analyst Robert Plaza, CFA still finds them attractive enough to rate them a Buy. The following excerpts explain his position:
'Zumiez reported in-line results for the third quarter. The company also issued fourth quarter EPS guidance of $0.48-$0.49 and maintained its full-year EPS guidance of $0.92-$0.94. The company also noted that November comp-store sales were in the high single digits with Thanksgiving weekend sales in the teens.
'Looking ahead to 2008, Zumiez is targeting 20% square footage growth, comp-store sales growth in the mid-single digits, and 25% EPS growth. We are increasing are slightly increasing our sales estimates, but leaving our EPS estimates essentially unchanged. We are forecasting lower gross margins.
'All told, we remain fans of the Zumiez shopping experience as well as the company's prospects for long-term growth. We reiterate our Buy rating on Zumiez and our $40 target price. While we don't expect the stock to rebound immediately, we think long-term holders will be rewarded.
'On October 12, ZUMZ shares hit an all-time of $51.25. Since then, the shares have declined 47%. This sharp decline appears to be overdone, given the company's still strong growth rate. ZUMZ shares currently trade at 29.1x our fiscal 2007 EPS estimate and 22.8x our fiscal 2008 EPS estimate.
'We think this valuation is attractive, as our estimate for Zumiez's long-term earnings growth is 26%. We also think the stock should trade at a P/E-to-growth rate of 1.2x our 2008 EPS estimate. Thus, our target price is $40, or roughly 34x our fiscal 2008 EPS estimate.'
Read the full analyst report on ZUMZ.
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