Sterne Agee Sees Significant Upside In Genesco (GCO)

Sterne Agee is reiterating its Buy rating and $36 price target on shares of Genesco Inc. GCO, even as the research firm expects earnings to disappoint. In a note to clients, Sterne Agee writes, "2Q sales post May have shown deceleration from all who have reported. Through the first 3 weeks of May, GCO reported that overall SSS were up 3%, led by a 5% increase at both Journeys and Lids. We are lowering our overall SSS estimates for 2Q11 and FY11 from +4.6% and +4.2% to +1.9% and +3.4%. We are also lowering our 2Q and FY EPS estimates from -$0.03 and +$2.33 to -$0.05 (FC Est. = -$0.02) and $2.26. Weakening mall traffic and decelerating sales in the skate category are the primary reasons for the adjustments in the 2Q estimates." Sterne Agee goes on to say, "We are confident that the accelerating boot trend will lead to FY11 EPS results that exceed the $2.10 - $2.20 guidance given on the 1Q call. The increased penetration and additional acquisitions within the Lids’ concepts, and accelerating boot business play right into the core competencies of the company, as Journeys was the leader in the Dr. Maarten’s business in the not-so-distant past. GCO is currently trading just over 3X EBITDA, and our price target of $36 PT equates to a EBITDA multiple of 4.8X our 2012 estimate (which is being reduced to $2.57 from $2.66), which is still at a discount to the space." Shares of Genesco lost 19 cents yesterday to close at $25.33.