Retail

Federated Faces More Trouble Ahead

 

Using sales at the low end of Federated's projected range of $6 billion to $6.1 billion, and lower margins than most of Wall Street has projected, I expect Federated to earn $2.22 a share in 2007.

Although analysts might not agree with my prognosis (that's fine with me), it appears investors do. Federated's stock is priced at a sharp discount to its peers. Shares, at about $39.75, trade at a cheap 14.8 times forward consensus earnings estimates for 2007 and 17.9 times my estimate. That compares with a department store average of 19.7 times earnings.

If I'm wrong and Federated is able to ramp sales and convert customers, the stock is a bargain. But I expect investors to continue to be disappointed by more warnings throughout the year as sales languish and margins deteriorate.

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In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback; click here to send him an email.

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