Stifel Says Buy Shares Of Tuesday Morning

• Tuesday Morning Corporation TUES shares plummeted 36 percent on August 21, as compared to a 3.2 percent decline in the S&P.
• Stifel’s Taylor LaBarr upgraded the company from Hold to Buy, while establishing a price target of $9.
• The recent decline in Tuesday Morning’s shares appears to be an overreaction, LaBarr said, while adding that the company has good growth prospects over the long term.

Terming the recent decline in Tuesday Morning’s shares as an overreaction, analyst Taylor LaBarr said, “Such valuations are usually reserved for companies with existential threats and emerging doubts of a going concern. But TUES is not going away.” He added that the company has a healthy balance sheet, with no interest-bearing debt.

In the report, Stifel noted that three consecutive comps misses, the loss of a well-liked CEO and a lowering of the estimates had “rattled investor confidence.”

Saying that the markets have cast Tuesday Morning as a “broken turnaround story,” LaBarr wrote, “[W]e don’t think that’s true. Expectations have now been reset and we look to 2Q16 and beyond.”

“We expect comp store sales up mid-single digits in FY16 (in line with guidance) and revenue drivers are highly visible. FY16 is a peak investment year, but in CY17 we are modeling a positive free cash flow yield of 5%,” LaBarr said.

The company’s long-term growth prospects are expected to be driven by store relocations, supply chain improvement, growing brand awareness and improving product quality, the report mentioned.