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Guess Deserves Premium Valuation, Cowen Says After Quarterly Report

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Guess Deserves Premium Valuation, Cowen Says After Quarterly Report

Apparel company Guess?, Inc. (NYSE: GES) reported third-quarter results Wednesday that initially sent shares tumbling lower, but Cowen said the print signals continued momentum in the brand. 

The Analyst

Cowen's John Kernan maintains a Market Perform rating on Guess with an unchanged $25 price target.

The Thesis

Kernan shared four takeaways from the Q3 print in a Wednesday note. (See his track record here.) 

They are: 

  • Non-GAAP EPS of 13 cents fell short of the Street's estimate, but was within management's guidance range. Guess posted an EPS beat consensus above the EBIT line.
  • The company saw positive same-store sales in all geographic regions, along with higher average unit retail sales and improved conversion.
  • The Americas business grew margins by 330 basis points from a year ago due to lower markdowns, higher price points and rent reductions.
  • The international business showed substantial runway, especially in Europe, Asia and China.

Guess' fourth-quarter guidance — which includes a low-single digit decline in Americas retail sales — appears conservative given recent momentum from ongoing gross margin expansion and SG&A rate deleveraging, Kernan said. 

Same-store retail sales should continue to expand by a low single digit in the Americas, while the international business looks "robust," the analyst said. 

Cowen's $25 price target is based on an 18 times multiple on fiscal 2020 estimates of $1.39, a premium to the group average of 15 times.

The premium valuation is warranted given a clear path toward 300 basis points of EBIT margin recovery over the medium term and expectations for a 2.9-percent free cash flow yield in fiscal 2020, Kernan said. 

Price Action

Guess shares were trading higher by more than 3 percent at $22.56 at the time of publication Thursday. 

Related Links:

Guess Provides 'Excellent Opportunity' To Try On A Turnaround Story, Says B Riley FBR

'The Time Is Coming' For Investors To See A Path To Guess?'s Multiple Expansion

Public domain photo via Wikimedia. 

Latest Ratings for GES

DateFirmActionFromTo
Aug 2019ReiteratesBuy
Feb 2019UpgradesHoldBuy
Feb 2018UpgradesNeutralBuy

View More Analyst Ratings for GES
View the Latest Analyst Ratings

Posted-In: ApparelAnalyst Color Earnings News Guidance Price Target Reiteration Analyst Ratings Best of Benzinga

 

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