Credit Suisse Downgrades Bon-Ton Stores, Cites Recent Share Outperformance

Bon-Ton Stores Inc BONT shares have jumped 10 percent since April 8. Credit Suisse’s Michael Exstein downgraded the rating for the company from Neutral to Underperform, while reducing the price target from $2 to $1.50.

Unjustified Share Outperformance

Analyst Michael Exstein believes Bon-Ton is “successfully managing” those aspects of its business that it can control, such as inventories and merchandising initiatives.

The analyst added, however, that the company has a “highly leveraged financial and operating structure,” which gives it limited flexibility to cope with “the current cyclical and secular challenges” being faced in the mall anchor sector, while its less-levered peers are able to cope better.

Related Link: Target Slides After Barclay's Downgrade

FAB Tailwind Disappearing

While Bon-Ton’s shares gained 13 percent in the past week, shares of the remaining mall anchors were down 1 percent.

“The tailwinds from ‘FAB’ (Footwear, Accessories, Beauty) categories appear to be ending,” Exstein wrote. He added that between 2009 and 2013, FAB categories had been the only categories achieving sales growth at Bon-Ton and with this important tailwind disappearing, it remained unclear if any merchandise category would be able to replace FAB “as a sales and margin headwind” for the company in the near term.