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KeyBanc Upgrades Nordstrom, Says Valuation Undervalues Businesses

KeyBanc Upgrades Nordstrom, Says Valuation Undervalues Businesses

Upscale fashion retailer Nordstrom, Inc. (NYSE: JWN) is approaching an era where it's physical asset footprint will hit a peak and take a backseat to e-commerce growth, according to KeyBanc Capital Markets.

The Analyst

KeyBanc's Edward Yruma upgraded Nordstrom from Sector Weight to Overweight with a new $55 price target.

The Thesis

Nordstrom's final major physical footprint projects include a New York City flagship store, the opening of new stores in Canada and Rack stores in the U.S. market. Yruma says this should translate to a drop in capital expenditures from a peak of $1.1 billion in 2015 to around $800 million in 2020. The company is likely to continue closing up to four full-line stores per year.

Meanwhile, Yruma says Nordstrom's online sales of $4.6 billion account for 30 percent of total revenue. On a standalone basis, this would make Nordstrom among the biggest global apparel e-commerce retailers. Sales continue growing at more than 15 percent per year as online customers spend around five times as much as a single-channel customer. In fact, e-commerce gains serve as an offset to the full-line business if it remains pressured

As such, Nordstrom's stock at 12 times 2019 P/E and 5.2 times EV/EBITDA doesn't fully reflect the value of the online business. The stock's valuation remains near a three-year trough despite management's recent comments the demand environment showed signs of improving in mid-March.

Price Action

Shares of Nordstrom were trading higher by around 1.4 percent at $44.78 Wednesday afternoon.

Related Links:

Nordstrom Issues Weak Holiday Sales Report: The Sell-Side Reacts

Nordstrom's Q4 Keeps KeyBanc On The Sidelines And Bank Of America Bearish

Photo credit: GoToVan, via Wikimedia Commons

Latest Ratings for JWN

May 2019MaintainsUnderperform
May 2019MaintainsNeutral
May 2019MaintainsNeutral

View More Analyst Ratings for JWN
View the Latest Analyst Ratings

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