Will This Downgrade Have A Negative Impact On DSW (DSW) Stock Today?

NEW YORK (TheStreet) -- Shares of DSW Inc. (DSW) are higher by 1.06% to $23.62 in pre-market trading Thursday, despite a ratings downgrade to "neutral" from "buy" at Citigroup (C).

The firm said it lowered its rating on the discounted designer shoe chain as it believes the company lacks visibility and is facing increased promotions.

Citigroup lowered its price target on DSW to $26 from $46.

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The company's price target was also cut to $30 from $44 at Credit Suisse (CS) based on its recent guidance update.

Separately, 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 a few notable strengths, 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 and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

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 -8.51%.
  • 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 ($1.90 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.
  • DSW, with its decline in revenue, slightly underperformed the industry average of 3.4%. 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
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