Guess Headed For North American Inflection, Jefferies Says In Upgrade

Guess? Inc. GES may be on the verge of a comeback.

The Analyst

Jefferies analyst Janine Sticher upgraded Guess from a Hold to a Buy and maintained a $24 price target.

The Thesis

Guess’ recent share pullback presents an opportunity to own one of the few remaining retailers with both top-line growth and the potential for margin expansion, Sticher said in a Thursday note.

In late January, Guess announced the abrupt departure of CEO Victor Herrero, who is set to be replaced by Carlos Alberini, who was previously the retailer's COO from 2000-2010. The analyst views the management change as an opportunity rather than a sign of weakness.

“We view the pullback as an opportunity, as we think the change is unrelated to current business, and our work around Mr. Alberini’s track record points to potential to further elevate the organization," Sticher said.

Guess has a substantial runway for growth ahead in Europe and Asia, and data suggests inflecting North America momentum, the analyst said. A 7.5-percent operating margin over the medium-term is achievable, she said.

“On roughly $3 billion in sales, this would imply $2 in EPS — essentially a doubling of current earnings power."

5 Reasons For Jefferies' Upgrade

• Management change is an opportunity, not a red flag.
• Macro fears are overshadowing a global growth opportunity
• Data shows North America is picking up momentum.
• Runway for margin expansion.
• Recent pullback presents attractive risk-reward.

Price Action

Guess shares were set to close Thursday's session 4.1-percent higher at $21.05.

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