UPDATE: Credit Suisse Downgrades Dillard's as Business Momentum is Now Reflected in Valuation
In a report published Wednesday, Credit Suisse analyst Michael Exstein downgraded the rating on Dillard's (NYSE: DDS) from Outperform to Neutral, but reiterated the $93.00 price target.
In the report, Credit Suisse noted, “Since 2009, Dillard's has executed one of the most impressive retailing turnarounds in recent memory. This has been accomplished by rationalizing its store base, shifting into higher margin merchandise categories, and focusing on capital discipline. Both gross margin and EBITDA margin have expanded to near peak historic levels, and valuations have improved. But as DDS's sales/inventory trend continues to deteriorate, we think the retailer has more limited opportunity for gross margin expansion going forward.
"Thus we are taking this as an opportunity to lessen our exposure to the department stores by downgrading DDS to Neutral from Outperform. While this is not due to lack of confidence in the company's strategy, we think the company's current business momentum is now fully reflected in its valuation. We maintain our target price of $93, based on an EV/EBITDA multiple of 6.2x on our 2014 estimates.”
Dillard's closed on Tuesday at $91.27.
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