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Despite Selloff, Stifel Says G-III Apparel Stock Still Overvalued

G-III Apparel Group, LTD. NASDAQ:GIII, Macy's Inc NYSE:M - Despite Selloff, Stifel Says G-III Apparel Stock Still Overvalued

After G-III Apparel Group, Ltd. (NASDAQ: GIII) disappointed investors with a sales miss and tepid forecast for the third quarter and the full year, the stock plunged 20.66 percent on Tuesday and remained in the red on Wednesday. In all, the stock lost about 26.7 percent over the two trading sessions.

Despite the heavy selloff, Stifel analysts Jim Duffy and Peter McGoldrick believe G-III Apparel shares are overvalued, and the existing valuation failed to compensate any risks. As a result, the lead analyst not only downgraded the shares from Hold to Sell but also initiated a 12-month price objective of $28, signifying a greater than 8 percent possible downside risk.

The brokerage pointed out three key risk factors. The first is the distribution channels, which are structurally challenging. The second is related to the growing execution risk and complexity. The third factor is in regards to "higher than anticipated pro-forma leverage."

"GIII's 10 largest wholesale customers contribute a low-sixties percent of total sales, Macy's contributes, a low twenties percent of sales (Macy's Inc (NYSE: M) closing 100 doors in early 2017), and GIII's own outlet stores contribute approximately 20 percent of sales," the lead analyst told clients in a research note.

Stifel sees the traffic issue risk pressuring volumes, which has the potential for "further footprint rationalization."

Shares of the company traded down 4.65 percent to $31.74 at time of writing.

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DateFirmActionFromTo
Aug 2016Stifel NicolausDowngradesHoldSell
Jul 2016Telsey Advisory GroupDowngradesOutperformMarket Perform
Jul 2016Piper JaffrayDowngradesOverweightNeutral

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