Analysts in Retail Bracing for Recession

Analysts in the retail sector are bracing for that other ‘R’ word - recession.

Ryan Balgopal of Scotia Capital Markets said:

On average, our earnings per share estimates for next year have been trimmed by 11% and we are generally 15% below consensus.

We continue to rate Canadian Tire as a sector outperform as we believe the stock is largely reflecting a weak economic outlook. Near-term, however, the shares may come under some pressure as street estimates fall.

He reduced his 2008 and 2009 per-share earnings estimates on the stock to C$4.74 and C$4.50 from C$4.89 and C$5.25, respectively, and cut his price target to C$65 from C$74.

Sporting goods retailer Forzani (FRZNF.PK) and book seller Indigo (IDGBF.PK) have also all experienced share price declines and represent decent value, he said.

“[But] their heavy exposure to the Christmas quarter suggests a more cautious approach at this time," he said.

He trimmed his share price target on Forzani, which he rates sector perform, to C$15 from C$16 and cut his 2009 and 2010 earnings per share estimates on the sporting goods retailers to C$1.05 and C$1.15 from C$1.10 and C$1.25, respectively.

He reiterated his sector perform rating on Indigo, which expects 95% of this year’s per share earnings to come from the Christmas quarter, and reduced his price target to C$17 from C$18. He cut his earnings per share estimates in fiscal 2009 and 2010 to C$1.19 and C$1.30 from C$1.25 and C$1.39, respectively.