Dillard’s Difficulties Priced In

Source: http://www.zacks.com/stock/news/14433/Dillard%27s+Difficulties+Priced+In
Posted on Wednesday, August 27th, 2008 | In Stocks to Watch

Contributed by: Zacks Market Commentaries (http://www.zacks.com/) -

The companyÂ’s recent results show that DillardÂ’s, Inc.Â’s (DDS) operations continue to struggle. We are estimating further declines in over the next few years. Its stock price reflects this view. Despite its poor operating results and weak near-term outlook, we maintain our Hold rating.

Our neutral view comes from the activist shareholders that are pushing the DillardÂ’s management team to unlock shareholder value, and the company is responding. DillardÂ’s recently announced a plan to close underperforming stores, reduce capital expenditures, reduce expenses, and execute merchandise improvements. This plan is step in the right direction to improve the companyÂ’s operations and could eventually bring DillardÂ’s results in-line with its department store peers.

We think the companyÂ’s sales benefited from the government stimulus checks in the second quarter, and that its sales trends will weaken in the second half of the year. With projected losses for the next two years, the stock doesnÂ’t have a P/E multiple. If the companyÂ’s efforts to improve its operations begin to take hold, however, it could expand its operating margin from 0.5% to 4.0%.

With flat revenue growth and an operating margin of 4%, DillardÂ’s would have earnings power of $2 per share. Using an EPS estimate of $2, the stock is trading at about 6x. That makes our near-term price target of $12 look fair, as the overall macro environment will make it difficult for the company to achieve $2/share anytime soon.

Read the full analyst report on DDS

“DDS” Free Stock Analysis: Buy? Sell? Hold?
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