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Express: Analyst Suggests Caution Following Recent Speculative Frenzy

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If anyone was expecting a slow return to normalcy at the start of 2021, then the markets have provided a rude awakening. The last few sessions have seen new levels of crazy.

The GameStop retail-driven frenzy has had a snowball effect, gathering in its wake other stocks with high short interest. The latest to benefit from the short squeeze mania is Express (EXPR). Shares of the fashion retailer are up by 559% in 2021.

Unsurprisingly, given the surge has little to do with improving fundamentals, Wedbush analyst Jen Redding has misgivings about the rise.

“We are more cautious on share price and valuation now as the stampede on Express shares seems to discount the company hemorrhaging cash,” the analyst said. “They are burning upwards of $134.5 million in nine months as the pandemic drives demand for more casual work-at-home apparel, hitting gross margin and comp at the traditionally dressier apparel retailer particularly hard.”

What’s more, the latest data is hardly encouraging. Redding forecasts weaker-than-expected 4Q results, with gross margin anticipated to “miss consensus estimates materially.” The analyst now forecasts 4Q20 gross margin of 11.40%, well below the Street’s 17.78% forecast.

Additionally, Redding says that had the latest quarterly results been encouraging, the company would have pre-announced results when it disclosed the $140 million in financing it recently received from hedge fund Sycamore Partners and Wells Fargo.

Accordingly, Redding lowered estimates in her EXPR model and now anticipates an EPS loss of $0.89 in Q4, compared to the consensus estimate for a $0.70 loss, driven “primarily by disappointing merchandise margin.”

That said, while Redding remains cautious regarding near-term developments, looking further down the line, a brighter picture emerges. Over the longer-term, the analyst cites “federal stimulation and a return to social activities,” as presenting a “unique opportunity ahead.”

All in all, Redding sticks to a Neutral (i.e. Hold) rating, and his $1.5 price target implies a 75% downside from current levels. (To watch Redding’s track record, click here)

Only one other analyst has thrown the hat in with an Express review recently. The additional Hold rating provides the stock with a Hold consensus rating. Meanwhile, the stock’s average price target matches Wong’s, at $1.5. (See EXPR stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.