The brokerage liked the company's prospects on a long-term basis, especially its strength in women's category in smaller markets. At the same time, most of the expectations were already factored into the shares of the company for the near term. The analysts believe shares are trading higher than rivals.
"We have raised our PT to $29 from $24 to reflect our upwardly revised FY'18 EPS est, which was driven by share repo activity. Valuation/Risks Our $29 PT is based on 15x P/E and 6.2x EV/EBITDA, above peers and similar to historical averages. Risks include deceleration in fashion trends, online competition, and execution risk," the lead analyst told clients in a research note.
The brokerage suggested the second-quarter results presented mixed performance in category. While a recovery in sandals was present, a slowdown in adult athletics offset the strength.
The lead analyst is encouraged by the Shoe Carnival's improvement in the current quarter trend ahead of the back-to-school season. The brokerage sees considerable opportunity on the hopes that normalized weather would drive sales and offer better margins.
At time of writing, Shoe Carnival was down 12.07 percent on the day, trading at $26.08.
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