Welcome to the Stock of the Day.
Dress apparel retailer Men’s Wearhouse (MW) is grabbing headlines as it continues a hostile takeover battle with its biggest rival. With Men’s Wearhouse also reporting fourth-quarter operating results in a few weeks, let’s see if we “like the way (MW) looks”.
With $2.5 billion in annual sales and 12,400 employees, The Men’s Wearhouse is a top dress apparel retailer in the U.S. In addition to running the 600 or so Men’s Wearhouse stores across the U.S., this company also operates 100 K&G Superstores (a retail chain featuring discontinued items at a discount) as well as 117 Moore’s Clothing for Men locations across Canada.
In 2006 the company bought out After Hours Formalwear and transformed it into a tuxedo rental chain called Men’s Wearhouse and Tux; there are currently just over 360 locations nationwide.
The big news surrounding Men’s Wearhouse is its ongoing takeover battle with Jos. A Bank Clothiers (JOSB), its main publicly-traded competitor. Back in October, Jos. A Bank approached Men’s Wearhouse with an offer to buy out the larger company. Men’s Wearhouse rejected the proposal and devised a counter offer to buy Jos. A. Bank.
After several months of this back-and-forth, Men’s Wearhouse has once again lifted its offer to $63.50, good until mid-March. A merger would likely result in lower costs, a broader customer base and stronger customer service.
Men’s Wearhouse is expected to release its fourth-quarter operating results in mid-March. This earnings report is looking a little shaky. Currently, the analyst community expects Men’s Wearhouse to announce $611.69 million in sales, basically flat over the year ago quarter.
Over the past three months, the analyst community has slashed its consensus earnings estimate from a loss of 8 cents per share to a loss of 12 cents per share. However, things do look better for Men’s Wearhouse for the rest of FY 2014 and beyond. In FY 2015, the company is expected to see 12.2% annual earnings growth.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system.
Over the past several months MW shares have made a turnaround—as recently as last September, MW was a D-rated sell. The stock has since improved to a B-rated buy as institutional buying pressure has improved to the point where the stock receives a B for its Quantitative Grade.
Meanwhile, MW still has quite a ways to go in terms of its C-rated Fundamental Grade. Of the eight financial metrics I graded MW on, it failed on three: Operating margin growth, earnings growth and earnings momentum. MW receives Bs on cash flow and return on equity.
Bottom Line: As of this posting I consider Men’s Warehouse stock a B-rated Buy.