Guess Investors Are Ignoring The Apparel Company's European, Asian Businesses

Wunderlich's Eric Beder reiterated his Buy rating on Guess?, Inc. GES shares, which were trading near a 52-week low last week, as he believes the market is ignoring the benefits of the company’s European and Asian businesses.

Q4 Expectations

Notably, Wunderlich is the only sell-side to have a Buy rating on Guess as investors worry after a slew of poor results from domestic specialty apparel retailers.

The comments came ahead of Guess' fourth quarter earnings on March 15. Beder expects EPS of $0.40, which is below management's $0.42 to $0.52 guide and Street consensus of $0.45. The analyst believes the consensus is achievable, but upside is limited.

“While we fully admit that the domestic side of GUESS?'s business, like virtually every one else, remains highly challenged, we believe investors are ignoring multiple signs of a turn in the key (and higher-margin) European and Asian businesses, which have the ability to drive overall upside for the company,” Beder wrote in a note.

Margin Boost From Potential Reduction In Domestic Footprint

Beder expects continued solid positive comps from owned European stores, as the fashion shifts and slow economic recovery drive upside, while North America was highly difficult.

In addition, Beder believes Guess is set to reduce its domestic footprint that should lower working capital and enable the company to deliver higher margins and preserve cash for dividends.

Shares of Guess closed Friday at $12.07. Beder has a price target of $20, implying a potential upside of about 66 percent.

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Image Credit: By Eva Rinaldi from Sydney Australia (Gigi Hadid) [CC BY-SA 2.0], via Wikimedia Commons