Confidence In DSW Grows, Q2 Expected To Generate Upside

DSW Inc. DSW is gaining a good amount of positive attention from Wall Street analysts. Analysts at Deutsche Bank upgraded the stock to Buy on Tuesday and one day later analysts at Wedbush turned bullish.

Wedbush's Christopher Svezia upgraded DSW's stock from Neutral to Outperform with a newly established $22 price target as the footwear retailer's outlook is under-appreciated by the Street.

DSW's second quarter is expected to come in ahead of consensus estimates and the momentum will carry over throughout the rest of the year, the analyst stated. In fact, the Street's estimate is "too bearish" for the second quarter at $1.44 per share, which falls short of the company's own guidance range of $1.45 to $1.55 per share.

The Street isn't recognizing the fact that for the first time in a while, the company is "properly allocating inventory dollars" which will result in achieving or exceeding its comp outlook for the year, Svezia continued. Meanwhile, the company is "keeping promotions in check" and initiatives around new merchandising will likely accelerate.

As such, investors should have confidence that DSW's outlook is "achievable" which would be the bare minimum to push the stock higher, the analyst suggested. In the meantime, the stock pays a 4.5 percent dividend yield which implies investors are "getting paid to wait."

Bottom line, the entire brick and mortar retail may be viewed as being "out of favor," but in DSW's case there is an opportunity for investors to benefit from disconnect between the sentiment and the expected performance throughout the rest of the year.

"While we don't anticipate DSW to return to its former glory of industry leading comps and margins, we contend that the company can make up some ground this year and that it’s worth more than where it is trading today," the analyst concluded.

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