Selling Blue Nile Ahead of Earnings

| About: Blue Nile, (NILE)

Blue Nile (NASDAQ:NILE) is scheduled to report third quarter 2008 results after the market closes on Tuesday, November 4. Based on our analysis, we at eChristianInvesting are expecting NILE to report better than expected results that beat Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $70.5 million and EPS of $.17. This would represent a 5% increase in revenues from last year’s $67.4 million in the same period. The current analyst consensus calls for revenues of $68.9 million and $.16 EPS. On August 5, the company gave third quarter guidance for revenue growth of 0 – 5% and EPS of $.15 – .17.

Blue Nile has an impressive track record of exceeding Wall Street’s expectations. We believe the company has successfully adjusted analysts expectations to more realistic levels and that mid-single digit growth is a reasonable expectation even in this tough economic environment. The company’s main offerings continue to be engagement rings – items which we believe are reasonably recession proof. Although website traffic, which was strong in July and August, appeared to drop off considerably in September. One key will be seeing if that was simply a one-time occurrence or if the drop-off has continued into October.

Share Performance

To date, Blue Nile’s shares have dropped 57% this year. Meanwhile, the NASDAQ has fallen only 37%. Much of the drop in Blue Nile’s share price has occurred this month as the recent market crash sent their shares plummeting 32%.


Shares are now trading at 25x consensus 2009 EPS estimates. Even with the sharp decline in valuation, the shares still trade at a premium to their peer group. So while we are expecting a NILE to report good quarterly results, we believe that fundamentally the company remains overvalued.

Recommendation: Sell with a $20 price target.

Disclosure: none

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Tagged: , Catalog & Mail Order Houses, Earnings, SA Submit
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