The firm said it changed its rating on the designer shoe retailer based on a valuation call, clean inventories and store growth.
Sterne Agee said it has "an expectation for increased capital allocation" which "gives us confidence to make this upgrade."
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TheStreet Ratings team rates DSW INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate DSW INC (DSW) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, growth in earnings per share, increase in net income and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DSW has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.30, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $94.56 million or 16.24% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.75%.
- DSW INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, DSW INC increased its bottom line by earning $1.64 versus $1.60 in the prior year. This year, the market expects an improvement in earnings ($1.92 versus $1.64).
- The net income growth from the same quarter one year ago has exceeded that of the Specialty Retail industry average, but is less than that of the S&P 500. The net income increased by 3.5% when compared to the same quarter one year prior, going from $27.15 million to $28.11 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.9%. Since the same quarter one year prior, revenues slightly dropped by 3.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: DSW Ratings Report