Deutsche Bank’s Paul Trussell has downgraded Tailored Brands Inc TLRD to Hold from Buy following its 31 percent election rally and balanced risk/reward.
After The Election Rally
Since Election Day, Tailored shares have been up more than any other stock in Deutsche Bank’s universe (31.4 percent vs. coverage average of 11.4 percent, S&P 500 at 2.4 percent).
“While we still believe management can bring JOSB (Jos. A. Bank Clothiers Inc, previously publicly traded JOSB back to positive comp territory starting in 4Q, restore MW as a steady growth story, and expand margins through next year as synergies are achieved and initiatives gain traction, we now think risk/reward is balanced at current levels,” Trussell wrote in a note.
The analyst also cut his third-quarter SSS estimates for JOSB to -13.5 percent from -7 percent and MW (Men's Wearhouse Inc, previously publicly traded MW) to 0.5 percent from 1.0 percent, mainly on unseasonably warm weather, a lack of sequential improvement in SpendTrend data and declines in digital traffic.
A Look Forward
Looking ahead, the analyst expects JOSB comps to turn positive starting in the fourth quarter and MW can once again be a steady 3–5 percent growth story starting in 2017. Trussell projects JOSB comp up 1.0 percent next year, and MW up 3.6 percent.
Notably, Trussell believes the company should reach a margin inflection point in the third quarter as it moves past factory store closures. Additionally, there are expectations for reversal of production and distribution headwinds once sales stabilize.
However, the analyst cut the price target to $21 from $22. At last check, Tailored Brands shares were down 7.22 percent at $17.85.
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