Destination XL Initiated With A Buy At Wunderlich

Wunderlich Securities started coverage of Destination XL Group Inc DXLG with a Buy rating and $6.50 price target, implying a potential upside of 30.5 percent from the recent levels.

Destination XL, the largest specialty apparel retail player, has begun to materially shift away from the Casual Male chain in 2011.

"We believe that the company is now at the point where the gains from the shift will become increasingly apparent and will drive bottom line and margin upside and investor recognition," analyst Eric Beder wrote in a note.

Management estimates Destination XL represents about 12 percent of the $3.5 billion -$4.0 billion men's big & tall apparel space.

"We believe that space represents a highly defensible segment with strong barriers to entry and limited economic volatility; despite weak mall traffic, the company has registered 12 consecutive quarters of positive comps," Beder wrote.

Beder noted the company is on the cusp of material margin expansion and set to deliver continued positive same-store sales and a return to profits.

On the margin front, the company expects to achieve long-term EBITDA margins of 13-14 percent versus 5.3 percent in FY16. For FY17, the analyst expects EPS of ($0.02) and revenue of $470.8 million. Street expects EPS of ($0.02) on revenue of $469.2 million.

"We view our projections of FY17 and FY18 EBITDA of $34.0 million and $50.3 million, respectively, as achievable and the start of a material margin ramp," Beder added.

At time of writing, shares of Destination XL were down 3.6 percent at $4.80.