While Zacks senior retail industry analyst Rob Plaza, CFA has been busy downgrading many of the stocks under his coverage recently, there is at least one stock -- Kirkland's (KIRK) -- which he has upgraded to Buy not too long ago. We looked into his latest report on the company to find out why:
'Kirkland's third quarter results were ugly. This shouldn't be too surprising given the current environment for home furnishings retailers. With the stock down 84% in the last twelve months, the worst-case scenario -- going out of business -- is more than priced in.
'We think that outcome is highly unlikely. That's because Kirkland's will end 2007 with no debt, it is closing unprofitable stores, it has basically stopped opening new stores and management is focused on cash flow and waiting out the current storm. In our opinion, the shares look cheap and represent a speculative buying opportunity.
'We rate the stock a Buy with a target price of $2.50. We are forecasting Kirkland's to generate losses in 2007 and 2008. Thus, its stock does not have a price-to-earnings multiple. However, it does trade at a discount to its industry peers using other relative valuation ratios, such as price-to-book, price-to-sales and price-to-cash-flow. Our target price of $2.50 assumes the company can be acquired at a slight premium to its book value.'
Read the full analyst report on KIRK.
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