UPDATE: J.P. Morgan Downgrades Saks to Neutral on Balanced Risk-Reward

In a report published Monday, J.P. Morgan analyst Matthew R. Boss downgraded the rating on Saks

from Overweight to Neutral, but reiterated the $12.00 price target. In the report, Boss noted, “With Saks at our $12 price target (trading at 8.3x EBITDA), we believe the market is now pricing in a 2H13/2014 positive ‘wealth effect' given recent market movement (+11.4% YTD w/DOW ~15K), something that the higher/rising tax burden on the company's core higher-income consumer may potentially delay. Near-term, we believe top-line trends at Saks remain constrained with luxury ‘cross-currents', namely the higher income tax burden (i.e., $14,812 incremental tax for HH income $500K-$1M w/ $170,341 for HH > $1M) offsetting the historically strong revenue to stock market sales correlation, in our view. Looking ahead, Saks faces its toughest 2-year compare in 5+ years in 2Q and while the company's Omni-Channel initiative (3Q full roll-out) and increased balance sheet flexibility (buybacks) provide potential 2H13 catalysts, we see rising gross margin headwinds (increased promotional stance, enhanced credit rewards) and elevated expenses (project evolution) likely placing the margin story on hold for now.” Saks closed on Friday at $12.00.