With the stock up more than 40 percent since February 2017, now is the time for Duluth Holdings Inc DLTH investors to move to the sidelines, according to Baird.
The Analyst
Baird's Jonathan Komp downgraded Duluth Holdings from Outperform to Neutral with an unchanged $30 price target.
The Thesis
Shares of Duluth Holdings, a maker of casual wear, workwear and accessories, are up nearly 70 percent in the past three months alone due to a strong retail backdrop and increased confidence in the company's growth strategy and e-commerce platform launch, Komp said in the downgrade note. (See his track record here.)
The strong gains in the stock reflect the favorable outlook, including expectations for 20-percent earnings growth in fiscal 2019, the analyst said.
Duluth shares are trading near 30 times NTM P/E, which is a premium to its historical average of 26.5 times and a premium to rival apparel maker Lululemon Athletica inc. LULU, which has a five-year average multiple of 27 times.
The case for a higher valuation is supported by the following factors, Komp said:
- The improvement of the e-commerce business while simultaneously avoiding the margin pressures other retailers of multiple brands face.
- Additional benefits from sales of Duluth-branded merchandise that reduce the need to discount.
- Long-term targets that add to the attractive growth story.
- A solid management that's executing well.
Price Action
Duluth Holdings shares were trading lower by 0.3 percent Thursday afternoon at $28.52.
Related Links:
For Duluth, Risks May Be Growing Faster Than Earnings
Duluth Is One Of The Best Unit Growth Stories In Specialty Retail
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