Ahead of the Bell: Blue Nile upgraded to 'Hold'

Deutsche Bank upgrades Blue Nile to 'Hold' after 3rd-quarter profit rises on higher sales

• On 9:14 am EST, Friday November 6, 2009

NEW YORK (AP) -- Shares of online jewelry retailer Blue Nile Inc. rose in premarket trading on Friday, after third-quarter profit rose 10 percent and a Deutsche Bank analyst upgraded the stock, seeing bright prospects for market share and its international business.

Still, the analyst raised his price target on the shares to a level below Thursday's closing price because he thinks the stock is too expensive.

Late Thursday, Blue Nile said profit rose to 17 cents per share, up from 15 cents in the year-ago quarter. International sales growth was strong, and the company gained market share, Blue Nile said.

Deutsche Bank analyst Herman Leung upgraded the stock to "Hold" from "Sell."

Leung said Blue Nile is making strides in gaining market share, given that many jewelers have gone bankrupt during the recession. Specifically, Leung said the number of jewelry businesses that have gone out of business in 2009 so far this year has risen 60 percent from a year ago.

Leung also said that international results are improving, which could be a bright long-term growth opportunity. An additional benefit to international business is the declining dollar.

"Diamonds are transacted in U.S. dollars, and with the dollar getting weaker, we believe there is a benefit for Blue Nile in the near-term," Leung wrote in a client note.

Leung hiked his price target by $20 to $50. That means he thinks shares have room to decline about 15 percent from Thursday's close of $58.72.

"We think a discount to its historical average is warranted as the business growth (about 20 percent) is slower than its historical average," he wrote.

Shares rose $3.26, or 5.6 percent, to $61.98 in premarket trading.

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