In the first quarter, School Specialty, Inc.'s (SCHS) earnings per share were $0.16 below the consensus estimate and $0.15 below our estimate. In addition, the management updated its guidance for fiscal 2009. The company continues to expect revenue of $1.08-$1.11 billion, but it lowered its EPS guidance from $2.27-$2.43 to $2.23-$2.39 to account for a $0.04/share cost to closing a distribution center in the second quarter.
We are slightly reducing our 2009 EPS from $2.30 to $2.28 but leaving our fiscal 2010 EPS estimate at $2.45. School Specialty's industry-leading market position and cost-cutting efforts are offset by growing competitive pressures and limited organic growth prospects. We maintain our Hold rating on the stock.
SCHS shares are currently trading at 13.3x our fiscal year 2009 EPS estimate and 12.4x our fiscal year 2010 EPS estimate. School Specialty shares typically trade at a P/E in the mid-teens, so its current valuation is reasonable. As such, we expect it to trade in line with the S&P 500 over the next six months. Our target price is $32, or about 14x our fiscal year 2009 EPS estimate.
Read the full analyst report on SCHS
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