Why Coach, Limited, TJX caught Sterne Agee's eye

The brokerage firm initiated coverage on a bevy of retail stocks today, seeing strength and growth prospects as catalysts.

By Benzinga Mar 4, 2013 6:22PM
By Nelson Hem

On Monday, brokerage firm Sterne Agee initiated coverage on a number of specialty retailers, citing strong growth prospects and longer-term fundamentals that are under-appreciated or misunderstood.


Among those retailers that Sterne Agee initiated with Buy ratings were Coach (COH), Limited Brands (LTD) and TJX Companies (TJX). Here is a peek at what analysts expect from these three stocks and how their share prices have fared.


Sterne Agee also initiated Sally Beauty (SBH) and Ulta Salon Cosmetics & Fragrance (ULTA) with Buy ratings, as well as Michael Kors (KORS) and Tiffany (TIF) with Neutral ratings.


Coach

This New York City-based designer of handbags and other accessories has a market capitalization of more than $13 billion. Its dividend yield is near 2.5%, and the price-to-earnings (P/E) ratio is less than the industry average. The long-term earnings per share (EPS) growth forecast is more than 13%. The return on equity is about 53%  and the return on investment is more than 43%.


The number of Coach shares sold short as of the February 15 settlement date represents more than four percent of the total float, after rising about 17% from the previous period.


Of the 33 analysts who follow the stock and were polled by Thomson/First Call, 18 recommend buying the shares, while only two of them rate the stock at Underperform. The analysts feel the stock has some room to run as their price target represents more than 20%  potential upside over the current share price. But note that the target is well less than the 52-week high.


Also note that the share price has declined more than 12% since the beginning of the year, and reached a 52-week low last week. Shares are trading more than 36% below where they were a year ago. The stock has underperformed the Dow Jones Industrial Average and the S&P 500 over the past six months.


Limited Brands

This purveyor of women's personal care products and accessories is headquartered in Columbus, Ohio, and it sports a market cap or more than $12 billion. Its long-term EPS growth forecast is about 11% and the P/E ratio is higher than the industry average. But the operating margin is greater than the industry average. The dividend yield is near 2.7%.


The short interest was more than three percent of the float at mid-February. That was the lowest number of shares sold short since November. The days to cover fell from the previous period to less than two.


Half of the 24 analysts surveyed recommend buying shares, and that has been the consensus recommendation for the past three months. Their mean price target, or where analysts expect the share price to go, is more than 11% higher than the current share price. But that would be less than the 52-week high reached in November.


The share price is down about five percent year-to-date, and it is also down marginally from a year ago. Over the past six months, the stock has underperformed competitors such as Gap (GPS), as well as the broader markets.


TJX Companies

This $33+ billion market cap company operates more than 2,200 off-price apparel and domestics stores. Its dividend yield is about one percent. The return on equity is more than 55%  and the operating margin is greater than the industry average. The P/E ratio is less than the industry average, and the long-term EPS growth forecast is about 12%.


The short interest in TJX Companies has risen about 25% since mid-January, but the number of shares sold short is only about one percent of the total float.


Sixteen of the 26 analysts surveyed recommend buying shares, and none recommends selling. Their consensus price target is less than nine percent higher than the current share price. That target would be a new multi-year high.


The share price is about four percent higher year to date, but more than 20% higher than a year ago. This stock has outperformed competitors Kohl's (KSS) and Ross Stores (ROST), as well as the broader markets, over the past six months.


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