Bank of America Upgrades ZLC To Buy

Bank of America has upgraded Zale Corp. ZLC from Neutral to Buy and is maintaining a $4.75 price target on the stock, which is down in spite of positive trends. Says Bank of America, in the report, “We are upgrading Zale from Neutral to Buy as the risk/reward favors upside given recent positive trends across jewelry retailing. Since Zale's F2Q11 results on Feb. 23rd, the stock is down 21% (S&P500 +3% and S&P Retail Index +6% for the same period). During that time, we have heard positive commentary on jewelry from other retailers giving us confidence Zale can meet our 10% comp estimate for F3Q. We acknowledge the company has challenges given its expensive debt and limited financial flexibility. However, its strategy shift over last two quarters is gaining traction. Our Price Target of $4.75 implies a FCF yield of 18% our F2013 estimates, appropriately more than double the group average of 8% given Zale's challenges, and in line with other retailers with limited financial flexibility.” ZLC closed yesterday at $3.53.