Pep in this step is on 'Hold' for Pep Boys
Pep Boys -- Manny, Moe & Jack released its fiscal year 2010 results last week. Sales were up, comparable store sales were up, and the company turned a profit.
In addition, it announced aggressive expansion plans (see "Pep Boys earns $36.6 million, plans to open MORE tire stores").
However, at least one analyst is being cautious when it comes to rating Pep Boys stock. BB&T Capital Markets recently issued a "Hold (2)" on the stock, which means the equity research firm believes the estimated total return potential is greater than or equal to 0% and less than 10%.
"Buy (1)" is the most positive rating, which means BB&T analysts predict the estimated total return potential is greater than or equal to 10%.
Tony Cristello, managing director of BB&T Capital Markets Equity Research, says Pep Boys's fourth-quarter results were a nice end to its fiscal year ended Jan. 29, 2011.
."Operating earngins per share (EPS) came in at $0.08, a penny above our $0.07 estimate and two cents ahead of consensus."
Total revenue for the quarter fell short of BB&T's forecast, and same store sales for the company's retail operations also were weaker than anticipated. A bright spot was strong than expected service center results, according to Cristello.
"Tire sales were particularly strong, increasing 11.8% year to year... which we believe likely bodes well for Cooper Tire."
He says the opening of new service and tire centers has slowed the rate of margin expansion in the company’s service center operations.
"We expect additional gross margin expansion over the next few years as 'shrink expense controls' continue to gain traction, and pricing initiatives are implemented, partially offset by drag at the EBIT (earnings before interest and taxes) margin line from higher unabsorbed costs at recently opened service and tire centers."
Cristello is cautiously optimistic about the stock.
"While much work remains in the Pep Boys turnaround, we are gaining more confidence in the company’s progression and would look to potentially revisit our rating upon a more favorable entry point to the name."
BB&T Capital Markets is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.