Jefferies Finds 4 Reasons To Like Zumiez

Shares of specialty retailer Zumiez Inc. ZUMZ peaked at $32.70 in early September, and investors should take advantage of the recent dip in the stock toward the $20 level, according to Jefferies.

The Analyst

Jefferies' Janine Stichter initiated coverage of Zumiez with a Buy rating and $28 price target.

The Thesis

Zumiez boasts a unique niche positioning in the retail space and is backed by four catalysts that support an upward move in the stock, Stichter said in the Thursday upgrade note: 

First, the company deserves credit for developing young brands with minimal outside distribution that have become popular with young consumers. This makes Zumiez an important destination for consumers looking for specific brands that serve as the company's "bread and butter."

Second, as a forward-thinking company, Zumiez continues to make the necessary investments to create a best-in-class omnichannel platform, the analyst said. At the same time, the company remains committed to its brick-and-mortar business, including a disciplined approach to expansion, she said. 

Third, investors can expect operating margin expansion over the near-term from fixed-cost leverage off a low-single digit comp, recovering international profits and a re-expansion of private label merchandise, according to Jefferies. 

Finally, after falling nearly 20 percent over the past month alone, shares of Zumiez are trading at 11.6 times P/E on 2020 estimated EPS and 4.6 times EV/EBITDA. Jefferies' $28 price target is based on 15.5 times P/E and 6 times EV/EBITDA, which is consistent with the stock's historical average and a slight premium to retail apparel peers, Stichter said. 

Price Action

Zumiez shares were rallying higher by 6.43 percent at $23.33 at the time of publication Thursday. 

Related Links:

Zumiez Strong Performance More Than A Passing Fad?

Benzinga's Top Upgrades, Downgrades For October 25, 2018

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