Guess?, Inc. (GES) Q2: Bulls Win, What’s Next?

Guess?, Inc.

Guess?, Inc. (NYSE:GES) shares are rallying nearly 18% today after the contemporary fashion retailer reported fiscal second-quarter results well ahead of market expectations. Specifically, the company posted adjusted net income of $0.19, beating Street’s expectations of $0.10, while revenues amounted to $573.3 million, above projections of $559 million. Looking ahead, Guess is looking for revenues in a range of $556 million to $567 million for the third quarter, which should filter down to profits of 8 to 11 cents per share.

In reaction, FBR analyst Eric Beder reiterates a Buy rating on GES, while raising the price target to $17.00 (from $16.00), which implies an upside of 16% from current levels. (To watch Beder’s track record, click here)

Where should investors go from here? Beder answers: “With investor sentiment on the turnaround opportunity on Guess? likely to rise following the company’s impressive performance during the second quarter, we recognize the importance of evaluating the long-term value creation of the company’s ongoing and, in particular, expanding international operations.”

“Based on our estimates, if the Guess? segment operating margin profile were even to remain flat over the next five years, the simple rebalancing of the company’s geographic segment revenue and operating income contribution would yield approximately 20% in compounded earnings growth. In addition, if we evaluate GES utilizing a sum-of-the parts discounted cash flow (DCF) analysis, and apply conservative margin expansion, long-term growth, and cost-of-capital assumptions, we believe the GES’s intrinsic value lies approximately within $17.00 to $18.00/share. We think the second-quarter results indicate the achievable performance of Guess?, on both quarterly and annual bases, for the foreseeable future,” the analyst continued.

Out of the 7 analysts polled in the past 12 months, one rates Guess stock a Buy, four rate the stock a Hold and 2 recommend a Sell. With a downside potential of 17%, the stock’s consensus target price stands at $12.20.


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