Investors are no doubt wishing they could simply return their shares in Le Château Inc. for a full refund.
The fashion retailer was down nearly 15 per cent today to levels not seen in more than seven years. It cut its dividend late Friday while releasing yet another disappointing quarterly earnings report.
Versant Partners analyst Neil Linsdell, who as recently as June reaffirmed his “buy” rating, has lost patience in a stock that has steadily declined from about $14 a year ago. He downgraded it to a “sell” from his most recent “neutral” rating, while slashing his one-year price target by $4 to $5.
Earnings per share for the second quarter of 14 cents were only about half of what Mr. Linsell expected, as comparable store sales sank 5 per cent. Meanwhile, expenses increased substantially and higher inventory levels are tying up cash, squeezing free cash flow and increasing borrowing requirements. The quarterly dividend was cut to 8 cents from 17.5 cents, making for a current yield of just over 5 per cent.
The company is undertaking a brand repositioning as it upgrades its merchandise and prepares to unveil a new store format in October. But Mr. Linsdell isn’t convinced things will turn around in the short term, especially given the extra expenses those initiatives will bring.
“This will remain a 'show me' story until the new branding strategy can demonstrate improved financial performance,” he said in a research note.
“With many investors remaining cautious about stocks in the retail space and the negative optics of a dividend cut, we believe that investors will be disenchanted with this story until they can demonstrate significantly better financial performance over an extended period of time.”
Things are unlikely to get any worse for Cisco Systems Inc. , RBC Dominion Securities Inc. analyst Mark Sue commented as he upgraded the stock to “sector perform” from “underperform.” Recent cost cutting should cushion its earnings outlook in the current challenging economic environment, and its financial model has “largely been reset” as it refocuses on its higher margin switching segment, he said.
Upside: Mr. Sue raised his price target by $3 to $17.
Guyana Goldfields Inc. has provided a “largely mixed” progress report on its Aurora project in Guyana ahead of a definitive feasibility study due at the end of this year, noted Raymond James Ltd. analyst Brad Humphrey. Nevertheless, he recommends investors buy shares of the company, in part because its “size, exploration potential, large and prospective land package and mining-friendly jurisdiction make it an attractive strategic takeover target,” he said.
Upside: Mr. Humphrey maintained an “outperform” rating and $15 price target.
Raymond James Ltd.’s latest channel checks that gauge how sales are going at Research In Motion Ltd. have been mixed, said analyst Steven Li. More than 50 per cent of the stores were sold out of the BlackBerry Bold, although he cautioned it was not known what initial inventories were. The Torch was seeking “Okay to modest” sell-through sales, he said.
Mr. Li believes the stock is still trading at an attractive price, given its valuation of 5.1 times estimated 2012 earnings per share, against its peer group of 16. “Overall, despite the depressed stock price, we continue to view RIM as very relevant in the enterprise as well as in some consumer pockets,” he said.
Upside: Mr. Li cut his price target by $6 to $54 but maintained an “outperform” rating.
Industrial Alliance Insurance and Financial Services Inc. is selling 6 million common shares to the Caisse de dépôt et placement du Québec through a private placement valued at $192.4-million. The deal will increase outstanding shares by 7 per cent, resulting in Desjardins Securities Inc. analyst Michael Goldberg slicing his earnings per share forecasts. “In our view, IAG is using this issue to strengthen reserves for recent market volatility, particularly the steep drop in interest rates since mid-year,” he commented.
Upside: Mr. Goldberg maintained a “buy-average risk” rating and $44.50 price target.