DSW Inc. - Momentum

DSW Inc. (DSW) just hit a new multi-year high after jumping higher on strong Q3 results that once again beat expectations. With estimates on the rise and a compelling valuation, this Zacks #1 rank stock has a step up on its momentum peers.

Company Description

DSW Inc., together with its subsidiaires, operates as a footwear specialty retailer in the United States. The company was founded in 1969 and has a market cap of $1.76 billion.

Shoes and shoe companies are hot going into the holidays as consumers regain the confidence to spend on discrtionary items after the brutal recession of 2009. That optimism lifted DSW to strong Q3 results on Nov 23 that came in ahead of expectations.

Third-Quarter Results

Revenue for the period was up 10% from last year to $489 million. Earnings also looked good, coming in at 79 cents, 5% ahead of the Zacks Consensus Estimate, where the company has an average earnings surprise of 15% over the last three quarters.

The strong quarter was driven by impressive same-store sales, a key retail performance metric, up 10.1% from last year.

DSW also helped itself with tight cost and expense managment, with operating expenses showing only marginal increases on the 10% revenue gain.

Strong Balance Sheet

The company continues to stay focused on its strong balance sheet, with cash and equivilants of $104 million and no long-term debt.

Estimates

We saw a big jump in estimates off the good quarter, with the current year adding 42 cents to $2.38 and the next-year estimate gaining 70 cents to $2.60, a solid 9% growth projection.

Valuation

But in spite of the nice gains, the valuation picture still looks solid, with a forward P/E of 16X against the industry average of 17X.

6-Month Chart

On the chart, shares have been trending higher for the last few months, recently hitting a new multi-year high on the good quarter. But in spite of the gains, the stochastic below the chart is signaling that shares are still trading safely away from over-bought territory. Look for support from the trend line on any weakness, take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.
 
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