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DSW shares rise following analyst upgrade

The Associated Press

DSW Inc.'s shares jumped Friday after a Credit Suisse analyst raised his rating on the discount shoe retailer's stock.

THE SPARK: Analyst Seth Sigman upgraded his rating on DSW to "Outperform" from "Neutral" saying that lower expectations for the company and a recent drop in its stock price provides a good opportunity to invest.

THE BIG PICTURE: DSW reported Tuesday that its fiscal fourth-quarter net income increased 40 percent but its adjusted earnings missed market expectations. Its revenue for the period fell short of expectations as well.

The company said that sales softened during the first six weeks of 2013. It told investors that it assumes revenue in stores open at least a year, a key financial indicator because it strips away the distorting impact of recently opened or closed stores, will be flat in the first half of the year.

If the company has flat revenue in established stores for the whole year, it anticipates net income of $3.30 to $3.40 per share for the year on an adjusted basis. Analysts had been forecasting earnings of $3.83 per share for the year, according to FactSet.

THE ANALYSIS: Sigman said that a combination of DSW's higher investments and lofty expectations had previously kept him away from the stock, despite what he sees as a good business model, strong management team and solid growth potential.

While earnings expectations for the year are down on the weak start to the first quarter, the analyst said he expects sales will improve. He says the slow start was due to colder weather and his checks suggest sales are healthy in areas with better weather. He said this suggests that sales could improve and he thinks the company could soon begin to reap the benefits from recent improvements to its merchandising and operations.

The analyst said he believes the near-term concerns about the company miss the longer-term growth opportunities for the company.

He raised his price target on the stock from $70 to $73.

SHARE ACTION: DSW's shares had fallen 7 percent this month as of Thursday's close. Its shares climbed $1.95, or 3.1 percent, to $65.34 in afternoon trading. Its stock is near the high end of its 52-week trading range of $51.16 to $72.