Volcom Swells To The Upside (VLCM)

Jefferies initiates coverage of Volcom VLCM with a Buy rating and a $22 price target. Volcom has a record of providing below-consensus guidance and then handily beating expectations. This was not the case last quarter, though, when the company mised consensus estimates, which in retrospect were too aggressive. Jefferies says Volcom has the best balance sheet in retail, with $4.50 in cash, no debt, and $1 of free cash flow generation. This cushion not only protects downside but also presents the ability to hunt for acquisitions. For these reasons, Jefferies sees Volcom as an attractive target. In the past, Volcom was overly exposed to PacSun which accounted for 30% of net sales at the peak in 2005. That number has fallen to 10% as Volcoms's management has diversified its distribution into new channels and geographies and business while PacSun saw significant declines. Jefferies believes the combination of an attractive growth profile combined with low expectations and a strong balance sheet warrants a premium multiple to the group. Risks include further consideration at retail, cost inflation, and foreign exchange volatility. Volcom is about 3% higher in mid-day trading, to $18.11. Learn how to find the best stocks to trade each day in our 70 page E-Book and 90 minute online video for free.