Cost Plus Inc. upgraded to “market perform”
Morgan Keegan & Co today upgraded casual home living and entertaining product retailer Cost Plus, Inc. (Nasdaq: CPWN) to a rating of “market perform” from “under perform.”
“We view the valuation as appropriate given the struggles the company faces in rejuvenating sales and earnings,” Morgan Keegan analyst Laura Champine wrote in a research note.
Shares of the California based company have tumbled 29% since the beginning of 2007 and currently trade at less than 1x tangible book value of $12.71.
Cost Plus was recently eliminated from the Russell 2000 Index, and Champine said this may have contributed to recent weakness of the stock.
Although shares of the retailer have plunged this year, Champine notes that the road ahead for Cost Plus shares could be a volatile one rooted in short-term sentiment changes. Lately there has been speculation that the specialty retailer may be bought out. This speculation is validated in a filing by Red Mountain Capital Partners, which entered into a confidentiality agreement with the company in April. No updates have been made since this agreement was made public.
With a mixed picture ahead for Cost Plus, Champine writes,“We believe the decline in share price, high short interest, and potential for take-out speculation make for a more evenly-weighted risk/reward profile.”
Champine’s EPS estimate for the July quarter remains unchanged at a loss of $0.61 per share compared with a consensus estimate by 16 analysts surveyed by Thompson Financial of a loss of $0.65 per share.
While Champine’s EPS estimate for the July quarter remains unchanged, she raised her fiscal year 2007 EPS estimate to a loss of $0.81, compared with a previously forecasted loss of $1.02. The revision reflects the restatement of first quarter results.
Shares of Cost Plus, which have been trading in a range of between $7.56 and $14.34 for the past year, were up 9.83% or $0.76 to $8.49 in 4 p.m. trading Wednesday.
