Nordstrom's Post-Q1 Selloff 'Overdone,' Deutsche Banks Says In Upgrade

Fashion retailer Nordstrom, Inc. JWN's stock fell nearly 10 percent in reaction to its May 17 first-quarter earnings report, but the decline is "overdone" and investors should buy the dip, according to Deutsche Bank.

The Analyst

Deutsche Bank's Paul Trussell upgraded Nordstrom from Hold to Buy with a price target lifted from $52 to $55.

The Thesis

Nordstrom's stock has fallen around 10 percent, but an opportunity exists for the stock's multiple to recover, Trussell said in the upgrade note. (See the analyst's track record here.)

Encouragingly, the retailer maintained its comp guidance for fiscal 2018 and lifted the low end of the range for EPS and EBIT despite weaker-than-expected comp growth in the first quarter.

The majority of Nordstrom's initiative investments in digital and other areas of the business have already been made, which bodes well for SG&A moving forward, Trussell said. The initiatives — coupled with a "relatively small" store network and focus on exclusive and limited brands — positions the retailer for market share gains, the analyst said.

The risk-reward profile for Nordstrom stock is now "skewed to the upside" after the recent sell-off, according to Deutsche Bank.

Trussell's $55 price target is based on a 14.5x multiple on a 2019 EPS estimate of $3.76, which is above the Street's estimate of $3.58 per share.