GCO’s Balance Sheet Leverage Supports Profit Expansion

Analysts at Piper Jaffray reiterate their "overweight" rating on Genesco Inc GCO, while raising their estimates for the company. The target price for GCO has been raised from $36 to $37. Analysts believe that Genesco would report its FQ1 results better than expected. According to Piper Jaffray, “Checks suggest significant improvement in y/y demand for the dress shoe category (Johnston & Murphy) against easy comparisons, Journeys sales have been steady, and Hat World continues to gain market share in key geographic areas.” “GCO has employed a slightly more aggressive strategy to leveraging its balance sheet to acquire growth…. We credit management with utilizing cash flow to pay down related debt and with roughly $80 million in net cash ($3.43/share; 12% of market cap), we think the company will continue to seek small tuck-in acquisitions, particularly to fold into the Lids business as the headwear market remains highly fragmented,” the analysts add. Piper Jaffray has raised its EPS estimates for FY11 and FY12 from $2.07 to $2.14 and from $2.43 to $2.47, respectively, on improved comp sales rates. More Analyst Ratings here