On Wednesday, September 5th, analysts at Deutsche Bank upgraded shares of Williams Sonoma, Inc. (WSM). The firm raised its rating on the stock from a Hold to a Buy and set a $48.00/share price target. As a result of the upgrade, shares of WSM reacted quite nicely, trading up 3.85% since Wednesday. It should also be noted that stock reacted positively, following a January downgrade from Oppenheimer. That said, an analyst upgrade can mean great things for a stock, and in the wake of WSM's upgrade, I wanted to highlight some of the positive catalysts behind my decision to establish a position in the company.
Williams Sonoma, Inc., which is based in San Francisco, California, operates as a specialty retailer of home products. It offers culinary and entertaining products, including cookware, cookbooks, cutlery, informal dinnerware, glassware, table linens, specialty foods, and cooking ingredients; and bridal and gift registry services under the Williams-Sonoma brand. The company also provides home furnishing categories, including furniture, textiles, decorative accessories, lighting, and tabletop items under the West Elm brand; bed and bath products, and gift and bridal registry services under the Pottery Barn brand; children's furnishings and accessories, and gift registry services under the Pottery Barn Kids brand; and home furnishings and decorative accessories designed for teenage market under the PBteen brand, as well as manufactures and retails reproduction lighting, and door and cabinet hardware under the Rejuvenation brand. Williams-Sonoma, Inc. sells its home products through six e-commerce websites consisting of williams-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com, and rejuvenation.com; seven direct-mail catalogs comprising Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm, and Rejuvenation; and five retail store concepts, which include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, and Rejuvenation.
Comparable Returns on Assets
Over the last four quarters WSM has demonstrated very respectable returns on assets and if such returns can continue, this catalyst will certainly contribute to the growth of the company's stock. In the last 12 months WSM has demonstrated a return on assets of 12.04%, which when compared to several on the company's competitors, clearly outpaces both Macy's, which demonstrated a return on assets of 7.59% and Kirkland's (KIRK), which demonstrated a return on assets of 8.35%.
In my opinion, a company's margins can often be considered one of the more important key catalysts to consider before establishing a position. That said, I think the larger the profit or operating margin the more attractive the company, and vice versa. In the last 12 months, WSM has demonstrated a profit margin of 6.27% and an operating margin of 10.07%, which outpaced both Macy's (M) and Gordman's Stores, Inc. (GMAN) by a fairly wide margin. It should be noted that M posted a profit margin of 5.01% and an operating margin of 9.30% and GMAN posted a profit margin of 4.53% and an operating margin of 7.32% over the last 12 months.
WSM, in my opinion, is one the better companies within the high-end specialty retail sector and if the company can continue to outpace the competition we could easily see WSM surpass the $50.00/share level. If same store sales and continued earnings also demonstrate positive results over the course of the next 12-18 months, I see no reason why WSM can't trading higher than $53.00/share.
Disclosure: I am long WSM.