Morgan Stanley Initiates Coverage On DSW, Says Competitive Advantages Are Fading

Jay Sole of Morgan Stanley initiated coverage of DSW Inc. (NYSE: DSW) with an Underweight rating and $27 price target.

"In the 2000s, DSW's value proposition of great prices, selection and convenience was differentiated," Sole wrote. "Today the internet can match or beat DSW in all three areas."

According to Sole, the footwear space continues to evolve and favor athletic wear which does not bode well for DSW who will see its earnings falls short of market expectations over the long-term as the company faces an attack from various fronts.

The analyst notes that department stores are becoming increasingly price competitive while brick and mortar copycats continue duplicating DSW's model. In addition, the rise of off-price outlets and many brands increasing sales directly to consumers also hurts DSW's proposition. Finally, the Internet simply offers consumers with a wide variety of better selections and promotions.

Bottom line according to Sole: "DSW has had a differentiated offering, but today more and more competitors can emulate or surpass it."