Argus Maintains Buy On Pier 1 Ahead Of 2Q14 Earnings Report


In a research note published today, Argus analyst Chris Graja maintained a Buy rating on Pier 1 Imports (NYSE:PIR) with a $21 price target ahead of the company’s release of its second-quarter results. Graja believes that there are two debates heading into the 2Q earnings release. The first is whether something has materially changed, for the worse, in the business, or whether it has simply been hurt by transitory issues. The other big question is whether the company remains on track to reach an 11%-11.5% operating margin by the end of next year. Graja also predicts that the company will a suffer a 20% decrease in EPS value to $0.13 a share.

Graja wrote, “Our analysis suggests that there is significant upside in the shares. We are modeling 13% EPS growth in FY15 and more than 20% growth in FY16, and expect management to continue to return cash to shareholders through the recently increased dividend and a new $200 million share repurchase plan. 
CEO Alex Smith has a unique understanding of the competitive landscape, and his new e-commerce business is on pace to achieve a two-year sales goal a year ahead of schedule. E-commerce sales rose 260% year-over-year in the first quarter. Mr. Smith has tripled the merchandising team over the last six years and continues to hire more merchants to further differentiate PIR’s 95% mix of exclusive products.”

Graja continued, “While we are maintaining our Buy recommendation, we are concerned about the competitive environment and would like to see evidence that Pier 1 can exceed its guidance. We currently rank Pier 1 behind Williams-Sonoma, Home Depot and Lowe’s among our BUY-rated stocks in the home furnishings and improvement segment. 
Our one-year price objective is $21. Following the 1Q release, we cut our target from $23 based on a reduction in our current-year earnings estimate and slightly lower target multiples. These lower multiples reflect the company’s recent below- consensus results and our concerns about the competitive environment.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Chris Graja has a total average return of -1.2% and a 55.6% success rate. Graja has a -19.2% average return when recommending PIR, and is ranked #2688 out of 3298 analysts.

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