RBC Rating Change April 5 2010Harry Winston Diamond Corporation(NYSE: HWD; 9.99; TSX: HW)
Irene Nattel (Analyst)
Rating: Outperform (prev: Sector Perform)
Risk Qualifier: Above Average Risk
Price Target: 14.00 previously 11.00
Polishing the Stone: Raising Target to $14 from $11, Upgrading to Outperform
Upgrading Stock: Upgrading HWD to reflect the positive impact of global economic recovery on demand for diamond jewelery and rough diamond pricing.
Raising Target: Applying a 1.5x EV/Sales multiple for the retail segment ($3) and adding our $11 per share value for the mining assets drives an increase in our target price to $14 from $11.
Financial Results. Reported Q4/F10 headline EPS was (
.04), lower than our
.04 estimate.
Industry conditions Normalizing. Management confirmed that rough diamond prices for comparable quality stones are approaching the early 2008 highs.
Retail Segment Stabilizing - Slowly. Revenues +4% to $70.2 MM but fell short of forecast, and gains lagged other global luxury players. Gross margin of 44.1% was lower than forecast and below prior range due to mix. SG&A expenses of $36 MM were up a tick from prior year but overall remained well controlled.
All values in USD unless otherwise noted.