Nordstrom Estimates Declining

Seattle-based specialty retailer Nordstrom Inc. (JWN) operates a chain of department and outlet stores. The company reported weak third-quarter results. Its sales declined 8.4% year-over-year to $1.805 billion, and its earnings per share declined 50% to $0.33. What’s more, the company issued fourth-quarter guidance that was well below consensus expectations.

The stock appears cheap, trading at just 6.6x our fiscal year 2008 EPS estimate and 7.6x our fiscal year 2009 EPS estimate. JWN shares also trade a discount to its long-term growth rate and well below its 5-year average P/E of around 18x. As such, we think the stock will trade in-line with the overall market for the next six months.

However, given the difficult environment for retailers and the continuous decline in Nordstrom’s earnings estimates, we think it is prudent to remain on the sidelines. Our target price is $13, or about 8x our fiscal 2009 EPS estimate.

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