As we expected, Citi Trends, Inc. (CTRN) reported strong results for the second quarter. Sales were up 19.5% and EPS came in $0.03 ahead of the consensus. The company's results were driven by the government's stimulus package. Despite the big upside in the second quarter, the management maintained its full-year EPS guidance of $1.10-$1.15. Prior to the report, the market expected CTRN to earn $1.25 in 2008.
By maintaining its guidance, the management implied that it expects to earn $0.57-$0.62 per share in the second half of the year versus the consensus estimate of $0.72. That means either management is too conservative with its outlook or the market is too optimistic with its estimates.
We don't believe CTRN is being overly conservative, and we continue to believe that its results will deteriorate in the back half of the year. We maintain our Hold rating. CTRN shares are reasonably priced at 16.8x our fiscal 2008 EPS estimate and 15.0x our fiscal 2009 EPS estimate. This is in-line with our estimate of the company's long-term earnings growth rate. Our target price is $20.50, which represents a P/E-to-growth ratio of roughly 1.0x our 2008 EPS estimate.
Read the full analyst report on CTRN
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