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True Religion Apparel (TRLG) Still A Buyout Target: Analyst

 February 07, 2013 02:45 PM

(By Balaseshan) Brean Capital analyst Eric Beder continues to believe there is the potential that True Religion Apparel Inc. (NASDAQ: TRLG) will be acquired in the near term.

Beder said after almost constant disappointments, True Religion came through with a solid 4Q, easily beating Street (and his doomsday) projections, driven by positive domestic comps and the stirrings of a turn in the international segment.

Further, guidance for 2013 of mid single-digit bottom-line expansion, after two years of frustrating inertia, represents a key step forward in reigniting investor interest in the name, the analyst noted.

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With the women's business slowly improving and management getting a much better feel for managing the international business after a frustrating period, Beder believes the potential for the brand to regain momentum is rising.

When Beder throws in a cash rich balance sheet (net cash per share of $8.51 at the end of 2012), a dividend yield of 3.4% and a cash adjusted price-to-earnings (based on 2014 EPS of $2.18) of 7.0 times, he thinks the risk/reward in TRLG is impressive; he remains a buyer of the stock.

The analyst said the company's 4Q was a quarter of progress as the pieces are slowly coming to affect a turnaround in the international segment and the tough women's arena. He is pleased that True Religion management, even in the midst of a potential sale of the company, remains focused on maximizing returns.

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At current valuations, Beder believes the Street has forgotten the company's continued ability to register solid free cash flows and premium margins; a few more quarters like 4Q-2012, and he believes it will be inevitable that investors will "wake up" and give TRLG the credit it deserves.

The brokerage raised its 2013 EPS estimate to $1.92 on revenue of $512.6 million from $1.79 on revenue of $499.8 million, while establishing its 2014 estimate of $2.18 on revenue of $563.6 million.

TRLG is trading up 20.51% at $28.62 on Thursday.



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