Monday, KeyBanc Capital upgraded Pier 1 Imports Inc. (PIR) shares to Hold from Underweight. The brokerage narrowed its 2009 loss per share estimate to $0.55 from $0.92, and its 2010 loss estimate to $0.26 from $0.55.
Analyst Bradley Thomas said that since he initiated coverage on Pier 1 in August 2008 with his Underweight rating, the stock has declined 35%, compared to an increase of 8% for the S&P Retail Index. The company's position as a value-oriented home retailer comes with pluses and minuses.
The analyst noted that while the company would appear ideally suited to benefit from the current consumer environment and cost-conscious first-time home buyers, unfortunately its niche results in heavy competition with heavyweights Target and Walmart. In fact, Pier 1's sales peaked in 2003, several years before the housing market topped, as its marketing efforts lost steam and as mass merchants set their eyes on the sector.
While Pier 1's management team has been proactive with new merchandising initiatives and cost controls, and the analyst continues to believe management is taking the right steps, he would like to first see evidence that the company is hitting the mark with its customer base. Valuation appears attractive, and the analyst would look to get more positive on the stock once he sees true traction on sales initiatives with the consumer.
The analyst said that shares of PIR trade at 0.2x his 2009 estimate for sales. The company is projected to have negative earnings and EBITDA, making such valuation metrics not applicable. The average multiple for the home furnishings retailers the analyst currently cover is 0.8x his 2009 sales estimates.
Currently, PIR is up $0.04 or 1.58% and trading at $2.57.
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