DSW's Business Remains 'Solid' But Valuation Is 'Full,' Deutsche Bank Says

Footwear retailer DSW Inc. (NYSE: DSW)'s status as a "solid" business remains unchanged, but the stock's momentum over the past year now implies a "full" valuation, according to Deutsche Bank.

The Analyst

Deutsche Bank's Paul Trussell downgraded DSW from Buy to Hold with an unchanged $24 price target.

The Thesis

DSW's valuation expanded around 3.5 turns over the past 12 months and is trading one turn above its three-year average of 13.8x, Trussell said in a note. The stock is up 20 percent over the past month alone, which creates higher expectations heading into the company's earnings report on May 30. However, the analyst says there are some concerns around the impact of Town Shoes to full-year guidance as management's initial outlook excludes the acquisition which finalized on May 10.

DSW's earnings per share growth has been "limited" at just flat in fiscal 2017 and EBIT dollar growth is modeled to be down 5.3 percent in fiscal 2018 due to the competitive footwear retail segment, the analyst wrote.

Trussell's $24 price target is based on a 14.0x multiple on 2019 EPS estimate of $1.71, which is below the Street's consensus estimate of $1.75 per share.

Price Action

Shares of DSW closed Wednesday at $25.01, down 2.5 percent.

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