Will Ann Stock be Affected by Analyst Downgrade?

NEW YORK (TheStreet) -- Analysts at Piper Jaffray today downgraded Ann (ANN) to "neutral" from "overweight," while they increased the price target to $47 from $46.

The downgrade follows Ascena Retail Group (ASNA)'s announcement to acquire Ann, according to Piper Jaffray analysts. Ascena is an American retailer of women's clothing.

The deal, which is expected to close later this year, offers Ann shareholders $37.34 in cash and 68 cents of a share of Ascena, the equivalent of $47 per share.

Therefore, analysts said they updated their price target to reflect the announced deal price.

Some risks to the changed price target are reliance on key top management, markdown risk tied to private label product, and geopolitical uncertainty, they noted.

Ann is a national specialty retailer of women's apparel, shoes and accessories, sold under the Ann Taylor and LOFT brands.

In Tuesday's early morning trading, shares of Ann are increasing 0.87% to $46.81.

TheStreet Ratings team rates ANN INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ANN INC (ANN) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.1%. Since the same quarter one year prior, revenues slightly increased by 3.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has slightly increased to $121.42 million or 9.42% when compared to the same quarter last year. Despite an increase in cash flow, ANN INC's cash flow growth rate is still lower than the industry average growth rate of 19.66%.
  • The gross profit margin for ANN INC is rather high; currently it is at 50.08%. Regardless of ANN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.04% trails the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Specialty Retail industry and the overall market, ANN INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • The share price of ANN INC has not done very well: it is down 5.66% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
  • You can view the full analysis from the report here: ANN Ratings Report

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