Express Inc Com (NYSE:EXPR)

CAPS Rating: 3 out of 5

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Player Avatar ElCid16 (93.33) Submitted: 11/19/2012 2:21:02 PM : Outperform Start Price: $11.35 EXPR Score: +3.64

I'd been eyeing this stock for a few weeks now, and added a RL position earlier this morning.

The fundamentals look pretty strong from a balance sheet and income/cash flow perspective. They've cut their debt from $500MM to $200MM over the past 3 years and have over $100MM in cash. Revenues have increased from $1.7B in 2009 to almost $2.1B in 2011. Net income the past two years has been $130MM and $140MM. Interest expense in 2010 was about $50MM, but is only about $25MM now.

Now that management has debt at a level that is a bit more manageable, they've begun buying back shares ($50MM worth last quarter). With annual FCFs well over $100MM, I expect more share buybacks going forward, unless they decide to initiate a dividend.

Compared to companies like LTD and GPS, EXPR looks like a steal. The Limited's P/E is over 20, and the company has a mountain of debt. The Gap has a strong balance sheet, but revenue growth has been pathetic over the past few years. It's P/E is about 17. Express has a P/E of 6.6.

I'm not a fashion expert, and I'm guessing Express might be "out of style" or something right now (the company projected lower than expected numbers for Q3 2012). But the same thing was being said about The Gap and American Eagle in mid-to-late 2011 when they were trading 50% lower than they are right now. Bottom line is that I don't think a bad quarter warrants a 60% haircut for a company that is this fundamentally sound and has been in the fashion/clothing business for 30 years. A bad quarter or two is definitely baked into the stock price right now. I don't see much other than upside from here. Net income for the year will still be well over $100MM, probably closer to $115MM or so.

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