An Analyst's First Impression Of DSW's Big Q2 Beat

Shares of DSW Inc. DSW surged higher by 20 percent early Tuesday morning after impressing investors with a beat in its second quarter earnings report. DSW reported that it earned 38 cents per share in the quarter on revenue of $680 million while analysts were expecting the company to earn 29 cents per share on revenue of $66.1 million.

Despite top- and bottom-line beats, some analysts aren't sufficiently convinced DSW's stock deserves a Buy rating. The Buckingham Research Group's Scott Krasik maintains a Neutral rating DSW's stock with an unchanged $18 price target as there are better options available for investors in the shoe and footwear space.

Krasik's neutral stance stems from ongoing concerns, including:

• 1. A "muting" of DSW's value proposition due to internet pricing.
  2. off-price retailers continue to offer a "more compelling" shopping experience.
  3. DSW's management has a reputation of poor capital allocation decisions that complicates DSW's operating margin potentials.

Instead of DSW, the analyst prefers Caleres Inc CAL's stock, which stands out as a more differentiated retailer with a strong branded business that accounts for 42 percent of total sales and 65 percent of its EBIT (se Krasik's track record here).

Bottom line, ongoing concerns pertaining to DSW's ability to drive positive comps on a sustained basis in the future justifies a Neutral stance and $18 price target for the time being. However, the analyst did note that the firm's price target and estimates will be under view following DSW's post earnings conference call.

Related Links:

Earnings Scheduled For August 22, 2017

10 Stocks To Watch For August 22, 2017

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Image Credit: By Ser Amantio di Nicolao (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons