Shares in Ted Baker Plc (LON:TED) were up 5% after the London arm of the heavyweight Wall Street broker Goldman Sachs upgraded its recommendation on stock in the clothing retailer.
It made the move to ‘buy’ from ‘neutral’ on valuation grounds, keeping its 12-month price target static at £32.50.
Based on the current price of £28.32 (up 138p on the day), the shares would need to advance a further 18% to hit that mark. As a result of weak, weather-related trading and recent earnings per share guidance at the lower end of expectations the stock had drifted around 14% since January.
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While the closure of four underperforming stores in China is expected to exert drag on EPS, the lower corporate tax rate in the US looks likely to be an equaliser.
Therefore, Goldman is maintaining its ‘bottom line’ growth predictions of 10.4% and 12.5% for 2019 and 2020 respectively. It said the ‘key risk’ to its assumptions was what it called a ‘fashion miss’.
It also listed online cannibalisation as a threat and “the mis-execution on new space expansion and loss of key relationships”.
On the plus side, better consumer demand patterns, in particular in the UK and US, would boost the performance of Ted Baker as would “a return to sales density growth from existing trading space and higher sales densities from new store/concession openings”.