A Good Time to Buy Zumiez
After hitting an all-time high in October the share price of teen specialty retailer Zumiez, Inc. (ZUMZ), has declined 47%, but Zacks senior retail sector analyst Robert Plaza, CFA still finds them attractive enough to rate them a Buy. The following excerpts explain his position:
'Zumiez reported in-line results for the third quarter. The company also issued fourth quarter EPS guidance of $0.48-$0.49 and maintained its full-year EPS guidance of $0.92-$0.94. The company also noted that November comp-store sales were in the high single digits with Thanksgiving weekend sales in the teens.
'Looking ahead to 2008, Zumiez is targeting 20% square footage growth, comp-store sales growth in the mid-single digits, and 25% EPS growth. We are increasing are slightly increasing our sales estimates, but leaving our EPS estimates essentially unchanged. We are forecasting lower gross margins.
'All told, we remain fans of the Zumiez shopping experience as well as the company's prospects for long-term growth. We reiterate our Buy rating on Zumiez and our $40 target price. While we don't expect the stock to rebound immediately, we think long-term holders will be rewarded.
'On October 12, ZUMZ shares hit an all-time of $51.25. Since then, the shares have declined 47%. This sharp decline appears to be overdone, given the company's still strong growth rate. ZUMZ shares currently trade at 29.1x our fiscal 2007 EPS estimate and 22.8x our fiscal 2008 EPS estimate.
'We think this valuation is attractive, as our estimate for Zumiez's long-term earnings growth is 26%. We also think the stock should trade at a P/E-to-growth rate of 1.2x our 2008 EPS estimate. Thus, our target price is $40, or roughly 34x our fiscal 2008 EPS estimate.'
Hold-Rated LSI Target Lowered
The following excerpts explain why Zacks semi-conductor analyst Abdul Saleh remains neutral on LSI Corporation (LSI), the application specific integrated circuits (ASICs) manufacturer:
'LSI reported Q3 revenue of $727 million, exceeding the high-end of the company's guidance of $675 million - $705 million, up 47.5% from a year ago and up 8.5% sequentially. Pro-forma EPS (excluding ESO and special items) of $0.06 beat our estimate by a penny. Better-than-expected revenue growth was driven by strong storage results (up 32% q/q) and by strength in networking (up 19% q/q, driven by strong spending in wireless infrastructure).
'Gross margin came in at 43.4%, up from 40.9% reported in the previous quarter. The semiconductor segment reported revenues of $530.4 million, up 69.2% on a year-over-year basis and up 9.3% sequentially. Within the semiconductor group, storage semis were especially strong with $292 million (up 14.5% q/q) driven by strong shipment of SOCs and HDD controllers to Seagate Technologies (STX).
'In the fourth quarter, revenues are expected in the range of $700 - $730 million and non-GAAP EPS in the range of $0.05 - $0.09. We maintain our Hold rating on the stock and have reduced our target price to $7.00. LSI guided Q4:FY08 revenue to be in the $700 million - $730 million range.
'It is important to note that the consensus revenue number for Q4 and our prior estimate included one full quarter of LSI's mobility business.
