Friday, KeyBanc Capital downgraded Zumiez, Inc. (ZUMZ) shares to Hold from Buy. However, the brokerage increased its 2009 EPS estimate to $0.17 from $0.15, and its 2010 estimate to $0.36 from $0.33.
Analyst Edward Yruma said that the stock is up 72% since his June 16 assumption of coverage, vs. 12% for the Russell 2000. In the analyst's opinion, the stock is still inexpensive on an 2009 EV/Sales basis but less so at 84.1x 2009 P/E and 9.6x 2009 EV/EBITDA. While the analyst remains constructive on the company, particularly given the improvement in the comp, he believes that the valuation looks fair at current levels.
On an EV/sales basis, the stock remains attractive to long-term investors, but the analyst prefers to look elsewhere for the near to medium term. The company has a very strong product offering that is highly differentiated in the mall.
However, the analyst worries that near-term pressures in the action sports retail space could dampen near-term earnings growth, particularly if a new PSUN management team radically shifts its focus. The analyst would look to become more opportunistic on ZUMZ should the company demonstrate greater than expected margin improvement.
The analyst said that the company's comp down 12.1% for August was ahead of his expectations and points to impact of easier comparisons as well as sharper pricing. The company should see a further comp lift in September due to the Labor Day shift.
Currently, ZUMZ is down $0.75 or 5.22% and trading at $13.62.
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