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Blue Nile (NASDAQ:NILE) is scheduled to report its fourth quarter 2008 results after the market closes on Wednesday, February 18. Based on our analysis, we at eChristianInvesting are expecting NILE to report disappointing results that fail to meet Wall Street's expectations.

Analyst Expectations

We are forecasting revenues of $90.8 million and EPS of $.33. This would represent a 19% drop in revenues from last year's $111.9 million in the same period. The current analyst consensus calls for revenues of $94.6 million and $.36 EPS. While expectations have been lowered for the fourth quarter results we believe that Blue Nile may still disappoint Wall Street. Our checks show that traffic declined over 20% from last year.

It's evident that consumers cut back on their spending this holiday season with more individuals looking to trade down. On the positive side, expectations for 2009 have already been reduced. Currently, analysts are expecting a 4% drop in revenues this year. The market is probably assuming a more realistic 8-10% decline.

Share Performance

Blue Nile's shares are down 10% since the beginning of the year. Last year, the company's stock performance was abysmal – dropping 64% compared to the Dow Jones index's 34% drop.

Valuation

Shares are now trading at 28x consensus 2009 EPS estimates. This is still well above the relative valuations of its peer group despite the big drop in share price last year. We would expect shares to drop further following the company's quarterly results and don't expect to see any positive catalysts until there are clear signs of economic recovery.

Recommendation: Sell with an $18 price target.

Disclosure: None

Source: Earnings Preview: Blue Nile