Market Overview

9 Retail Stocks Cantor Just Initiated On

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Cantor Fitzgerald initiated coverage on nine retail stocks Monday, many with Hold ratings.

Below are the companies along with the ratings, price targets, and highlights from analysts Laura Champine and Jason Smith.

Williams-Sonoma, Inc. (NYSE: WSM) - Hold, $77 price target

“The company is the dominant leader in the home-furnishings category online, and in FY:14 it generated over half of total revenues through the e-commerce channel for the first time and now represents nearly 70% of segment operating profits. The fast-growing e-commerce business has been the driving force behind WSM's sustained top-line momentum over the past five years, but it has not translated to a meaningfully higher rate of consolidated operating profitability given the persistent margin contraction that has occurred in the retail segment over the same span. We think a HOLD rating is prudent with shares trading at 22x our FY:15 EPS estimate and 10x FY:15E EV/EBITDA.”

Coach Inc (NYSE: COH) - Sell, $32 price target

“We believe Coach's business model will become a business school case study about high returns attracting competition. The moral of the story is unlikely to be optimistic. In our experience, most investments in retail that rely on achieving historical ‘normalized’ margins are bad investments. No one needs to own a Coach bag. We believe the amazing part of Coach's story - how it created the accessible luxury category, grew like a weed to 30% market share in an extremely fragmented market of handbags priced over $100, and routinely reported EBIT margin in the 30%s and ROIC in the 60%s - is behind it. The management team that led those accomplishments - CEO Lew Frankfort (left 11/14) and Creative Director Reed Krakoff, President and COO Jerry Stritzke, and President, North America Mike Tucci, (all three left in 2013) - is also gone.”

TJX Companies Inc (NYSE: TJX) - Hold, $66 price target

“The off-price segment has grown at a faster pace than the broader apparel market over the last 10 years, and we expect more value-conscious shoppers will fuel a continued shift in market share. As the global leader in the off-price category, we believe TJX will sustain top- and bottom-line momentum over the long term amid the segment's ongoing expansion. In our recent visits to stores, we saw high-quality brands, and we think this trend should continue in the near term given the heightened product availability that has likely developed as a result of the recent West Coast port delays. TJX is a market leader that offers one of the highest ROICs in our coverage universe, but the shares appear fairly valued to us at current multiples.”

Gap Inc (NYSE: GPS) - Hold, $47 price target

“The company has been unable to regain sustainable sales momentum as the Gap brand continues to struggle with a women's assortment that is not resonating with customers. The transition to a responsive supply chain has begun, but progress has been slow at the namesake brand. Gap remains at a disadvantage to its fast-fashion counterparts as its lengthy manufacturing cycle does not allow for the flexibility necessary to adapt to shifting trends. New CEO Art Peck has been quick to reshuffle leadership at the struggling Gap and Banana Republic brands, but it remains to be seen how quickly the company can get its assortments back on track.”

Lowe's Companies, Inc. (NYSE: LOW) - Hold, $75 price target

“The company appears to be accelerating top- and bottom-line momentum behind its merchandising upgrades and labor optimization efforts amid what we view as still a healthy home improvement environment. We think this will enable Lowe's to continue closing the SSS gap versus Home Depot after having consistently lagged since the start of the housing market's upturn half a decade ago. The stock has had a stellar run, up 126% over the trailing three-year period, versus the S&P 500 index +52% and the RLX index +81%. We believe the shares already reflect Lowe's momentum at their current valuation.”

Tiffany & Co. (NYSE: TIF) - Hold, $86 price target

“We believe the company's near-term picture is somewhat cloudy given the recent sales weakness in the Americas (48% of total FY:14 sales) and ongoing currency headwinds. Tiffany has undergone a makeover on the executive level led by LVMH veteran Frederic Cumenal taking the reins as CEO on April 1. We think there may be some near-term disruption as a new culture is infused into what we think is a company that has been historically slow to change. Over the longer term, we believe the infusion of management talent will help revive profitability and a product pipeline that has lacked freshness.”

Dollar Tree, Inc. (NASDAQ: DLTR) - Buy, $96 price target

“Our price target is based on our DCF model, which incorporates our combined pro forma model for Dollar Tree post its acquisition of Family Dollar. Shares appear to us to already be trading at a healthy acquisition premium, having appreciated 46% since the initial offer was made on July 28, 2014 versus the S&P 500 index +5% and the RLX index +26% in the same time frame. Despite this run, we do not believe the basic cost synergies are fully reflected at the stock's current valuation. We present a pro forma model below that reflects the $300MM in annual cost synergies that DLTR expects to generate by year three, but we believe management's synergy estimates are extremely conservative. In our opinion, Dollar Tree's strong management and superior merchandising team should drive substantial productivity and operational improvements at Family Dollar over the long term.”

Urban Outfitters, Inc. (NASDAQ: URBN) - Buy, $54 price target

“We think the company is poised to regain top-line momentum as better fashion and an improved style presentation drive a recovery in the namesake brand. We expect a rebound in gross margin to follow suit as markdown levels recede and initial markups improve. The current management team has led a brand recovery before at Anthropologie, and we expect consolidated SSS and margins will follow a similar upward trajectory as the UO segment continues to regain traction. Urban's style diversity and leadership positions online and in customer engagement overall provide it distinct competitive advantages, in our view, particularly as social media savvy shoppers continue to seek out differentiated fashion.”

Home Depot Inc (NYSE: HD) - Hold, $108 price target

“The company has sustained healthy top- and bottom-line momentum since the housing market recovery began in earnest in 2010. We think home-improvement spending will remain healthy in the near term, but the tailwind from housing data is slowing. HD's SSS have consistently outperformed its top rival over that same span, a trend we anticipate will continue in FY:15. We don't see much upside from here given the stock's current valuation. Shares are just off an all-time high following a stellar run since 2012.”

Latest Ratings for COH

DateFirmActionFromTo
Nov 2017SusquehannaInitiates Coverage OnPositive
Oct 2017BairdMaintainsOutperform
Oct 2017BuckinghamMaintainsBuy

View More Analyst Ratings for COH
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