Friday, March 19, 2010

Schaeffer's Daily Contrarian

Schaeffer’s Research

On Friday morning last week, Ann Taylor Stores (ANN) reported a profit as "sales showed signs of stabilizing," notes this Barron's article. The shares slipped following the report, and the author believes that there is more downside in the works for ANN, citing valuation and the lack of a blowout quarter.

Given the stock's more than 530% gain during the prior 12 months, ANN now trades at 27.5 times forward earnings, the article states. For comparison, the author notes that Chico's FAS (CHS), Nordstrom Inc. (JWN), and J.Crew Group (JCG) all trade with forward P/E ratios in the mid-teens. What's more, the Street is anticipating that revenue will shrink year-over-year in 2011.

Analysts agree with this dour outlook, with Wedbush Morgan noting that "the company is in the early stages of a comp and margin recovery," making its 530% gain difficult to justify. Furthermore, Wall Street Strategies analyst Brian Sozzi believes that Ann Taylor may have pricing problems when it returns "to full-price business longer-term." Finally, Sozzi also takes issue with ANN's recent run-up, calling it "the richest multiples...within our specialty apparel sector coverage."

Link to full article: http://www.schaeffersresearch.com/commentary/content/ann+taylor+stores+looks+to+shake+loose+stubborn+bears/dailycontrarian.aspx?newsid=98544