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Downgrade Knocks Ethan Allen

Goldman Sachs says the home furnishings industry will see continued trouble.

Shares of

Ethan Allen

(ETH) - Get Free Report

slipped Monday after Goldman Sachs downgraded the furniture maker to sell from neutral, citing the likelihood of ongoing weakness in the home interiors industry.

Shares recently were trading down $1.14, or 3.2%, to $34.20.

While describing Ethan Allen's management as "best in class" who have built "a uniquely integrated business model (manufacture to retail)," Goldman Sachs analyst Adrianne Shapira said in a report that the "home furnishings area continues to carry the most fundamental risk over the near term with a tough cyclical back drop weighing on top-line results."

Shapira said Goldman's economics team still expects the housing turnover to stabilize during the third and fourth quarters before reaccelerating through 2008.

"From a macro perspective, as housing turnover -- our favorite leading indicator of furniture sales growth -- improves, we would expect home furnishing retail fundamentals to improve thereafter," she wrote.

However, she said signs of an improving housing market in the first quarter recently have turned mixed, and she suggested the improving indicators during the period now appear "largely due to unseasonably warm weather, which masked underlying weakness."

The downgrade comes a week after the Danbury, Conn.-based company warned that earnings for its recently ended third quarter would miss analysts' expectations. At the time, Ethan Allen emphasized the economic challenges for home furnishings retailers.

Elsewhere, Shapira maintained her buy rating on

Bed Bath & Beyond

(BBBY) - Get Free Report

, saying it remains her favorite stock.

"The company's historical immunity to housing cycles also remains a strong suit in the current macro environment," she wrote.

Shapira said that over the next several quarters there is a potential the Union, N.J.-based company could beat fourth-quarter earnings expectations, aggressively use its $1 billion buyback authorization, and raise 2007 estimates.

Shapira also maintained her neutral ratings on

Pier 1 Imports

(PIR) - Get Free Report



(WSM) - Get Free Report