Mizuho Upgrades Chico's FAS To Buy Before Earnings

In a report published Tuesday, Mizuho analysts upgraded the rating on

from Neutral to Buy. The price target was raised from $18 to $20. The analysts expect the company to post strong 1Q results, along with an improvement in momentum in May and benefits from earlier announced cost reduction initiatives. "With reduced receipts and over $93mm of opex cuts over 3 years along with store fleet rationalization and capital allocation programs, we believe this is an inflection point in CHS' fundamentals and see ~18 percent upside (to the stock) from current levels," the analysts said. Despite the slow start to the quarter due to adverse weather conditions, the analysts believe that the positive comp guidance issued by the company for 1Q is achievable. The analysts also expect Chico's to announce its 1Q EPS in-line with the expectations. Although the company is unlikely to provide EPS guidance for 2Q, there are indications that the quarter to date sales growth is about 203 percent, driven by favorable weather. "Also, we expect improved AUR on reduced receipts and markdowns combined with a balanced assortment of color, price point and fashion/basics continues to garner consumer attention," the Mizuho report stated. In addition, the analysts also expect the announced $93 million in savings over the next three years to begin benefitting the company's EPS in 2Q. The 2Q EPS estimate has therefore been raised from $0.23 to $0.25. According to the Mizuho report, Chico's is likely to announce "improving profitability of Soma and continued positive sales growth at Boston Proper, plans to increase AUR through markdown reduction, SG&A savings initiatives, and store rationalization and capital allocation programs."