Hallenstein Glasson Holdings [NZX: HLG], the worst performer on New Zealand's benchmark NZX 50 Index this year, was upgraded to 'buy' from 'hold' by brokerage Craigs Investment Partners, which said weakness in the stock has been overplayed.
Shares in Hallenstein have dropped 21 percent so far this year, lagging a 4.9 percent gain in the benchmark index, and last changed hands at $3.05. In a note published yesterday, Craigs raised its 12-month target price on the stock to $3.84 from $3.51.
Hallenstein, which operates the Hallensteins, Glassons and Storm clothing stores in New Zealand and Australia, has cut its earnings guidance three times since June last year, contributing to a stock price decline of more than 40 percent.
While the downgrades were not a good trend, the company's sales have historically outperformed general clothing and footwear sales and lagged the market only in December, when sales declined 10 percent from the year earlier compared with market growth of 2 percent, Craigs said.
"In our view, one month's poor performance versus the market does not justify Hallenstein's share price de-rating," Craigs analyst Chris Byrne said in the note. "It is difficult to conclude that structural concerns are the key driver and as a result we expect earnings to recover.
"One month's relative underperformance in December should not be extrapolated forward given Hallenstein's strong track record and the fickle nature of apparel retailing."
The performance of womenswear fast-fashion clothing chain Glassons may have been dented by a lack of dedicated leadership in an extremely competitive women's apparel market after the loss of New Zealand managing director Di Humphries in October 2012, with a 15-month gap before a replacement started, Byrne said.
Earnings per share should recover strongly in the company's 2015 financial year given it will be measured against weak comparative periods, Byrne said. He expects earnings per share of 29.3 cents in the year ending July 31, 2015, from an expected 24.5 cents in 2014 and 31 cents in 2013.