Wednesday, KeyBanc Capital initiated coverage of Oxford Industries Inc. (OXM) stock with a Hold rating. The brokerage established its 2009 EPS estimate of $0.50, and its 2010 estimate of $0.80.
Analyst Edward Yruma noted that the company is well underway in its transformation from an apparel manufacturer to a diversified apparel manufacturer and retailer. The analyst views this transformation positively long term, but remain cognizant that near-term pressures exist, particularly given Tommy Bahama's full-priced selling strategy.
The analyst looks to take a more constructive view in the long term, but at 21.0x his 2009 P/E, he finds the valuation reasonable. The analyst believes both stocks are reasonably valued at current levels and rate them both Hold.
Within the KBCM apparel universe, the analyst has a long-term positive bias, but favors G-III on a relative basis in the near term given its smaller retail presence and product offering expansion opportunities.
The stock trades near trough levels on both a P/E and EV/EBITDA basis. The analyst thinks this compensates for the low earnings visibility and headwinds facing all facets of the business. The analyst believes that the apparel space may not achieve peak valuations observed over the past five years, but do think that current valuations provide reasonable entry points for long-term investors.
The analyst's circumspect near-term view is largely predicated on our downbeat assessment of the consumer. The analyst prefers to wait to see signs of stabilization before he adopts a more constructive stance. Oxford, in particular, has more leverage to an economic upturn given its higher reliance on its owned-retail channel.
The analyst said that vertically integrated retailers have greater leverage, as they capture a larger percentage of the item's total margin. To this end, an investor with a more upbeat macroeconomic view would take a more constructive view on Oxford.
Currently, OXM is up $0.13 or 1.24% and trading at $10.65.
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