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KeyBanc Upgrades Nordstrom, Says Valuation Undervalues Businesses

Jayson Derrick

Upscale fashion retailer Nordstrom, Inc. (NYSE: JWN) is approaching an era where it's physical asset footprint will hit a peak and take a backseat to e-commerce growth, according to KeyBanc Capital Markets.

The Analyst

KeyBanc's Edward Yruma upgraded Nordstrom from Sector Weight to Overweight with a new $55 price target.

The Thesis

Nordstrom's final major physical footprint projects include a New York City flagship store, the opening of new stores in Canada and Rack stores in the U.S. market. Yruma says this should translate to a drop in capital expenditures from a peak of $1.1 billion in 2015 to around $800 million in 2020. The company is likely to continue closing up to four full-line stores per year.

Meanwhile, Yruma says Nordstrom's online sales of $4.6 billion account for 30 percent of total revenue. On a standalone basis, this would make Nordstrom among the biggest global apparel e-commerce retailers. Sales continue growing at more than 15 percent per year as online customers spend around five times as much as a single-channel customer. In fact, e-commerce gains serve as an offset to the full-line business if it remains pressured

As such, Nordstrom's stock at 12 times 2019 P/E and 5.2 times EV/EBITDA doesn't fully reflect the value of the online business. The stock's valuation remains near a three-year trough despite management's recent comments the demand environment showed signs of improving in mid-March.

Price Action

Shares of Nordstrom were trading higher by around 1.4 percent at $44.78 Wednesday afternoon.

Related Links:

Nordstrom Issues Weak Holiday Sales Report: The Sell-Side Reacts

Nordstrom's Q4 Keeps KeyBanc On The Sidelines And Bank Of America Bearish

Photo credit: GoToVan, via Wikimedia Commons

Latest Ratings for JWN

Date Firm Action From To
Apr 2019 KeyBanc Upgrades Sector Weight Overweight
Mar 2019 Gordon Haskett Downgrades Hold Reduce
Mar 2019 Deutsche Bank Maintains Hold Hold

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