Stifel Believes Nordstrom Is 'Best-In-Class'

• Nordstrom, Inc. JWN shares have lost 6 percent year-to-date, declining since hitting a high of $82.32 on March 20.
• Stifel’s Richard Jaffe upgraded the company from Hold to Buy, while establishing a price target of $84.
• The company is poised to benefit from the initiatives taken previously, by a decline in capex and an increase in EPS growth, Jaffe mentioned.

Following the investor meeting with Nordstrom’s management team in NYC on September 11, analyst Richard Jaffe said that the tone was positive. Nordstrom’s management expressed confidence in the company’s business model as well as its long-term prospects.

Jaffe mentioned that Nordstrom’s prospects are based on the company’s ongoing expansion of the store base, entry into Canada and set up of the first store in New York City. Moreover, the company is focusing on “remaining at the forefront of technology.”

Related Link: Nordstrom Succeeding In A Dying Brick-And-Mortar World

Stifel noted, “We see JWN as a best-in-class retailer and believe in owning the stock for the long term and before management begins to realize significant benefits from their intensive investment cycle over the past two years.”

Jaffe expects declining investments and significant cutbacks in capex over 2016 and beyond to result in improvements in ROIC and accelerating EPS growth over several years. These would be boosted by “the advantageous use of capital received from the sale of the credit card business,” the analyst added.

“A 20x multiple, a premium to the out year consensus multiple, is consistent with other best-in-class retailers in the space, which we view as appropriate given the strength of the Nordstrom brand and its reputation of outstanding service and deep and broad merchandise selection,” the Stifel report stated.

Jaffe commented that Nordstrom had consistently delivered favorable results over the past few years, which indicates the efficacy of its business model and the consistency in their approach towards customer-centric venues for growth.

“[The company’s] management has had the long-sightedness to invest in the future, built on the foundation of the Nordstrom brand and its two pillars of strength service and selection,” the report added.