Since the announcement in September, investor sentiment has once again started to become bearish.
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New York, NY (PRWEB) December 05, 2012
Profit Confidential, an e-letter of Lombardi Publishing Corporation, a 26-year-old consumer publisher that has served over one million customers in 141 countries, reports that the recent bullish sentiment is not rooted in sound fundamentals, but rather unfounded optimism after a third round of quantitative easing was announced in September.
In a recent article, financial analyst Sasha Cekerevac notes that the rise in investor sentiment was not built on a market view of substantially higher revenue and corporate earnings, but on the rush of additional cash into the financial system. The problem with such a market view, he contends, is that this is not a sustainable, long-term solution for either stocks or the economy.
“Since the announcement in September, investor sentiment has once again started to become bearish. People are realizing that there are significant economic structural issues that cannot and will not be resolved by simply pumping more money into the financial system,” says Cekerevac.
An interesting divergence in the market view between sectors has been that high-end retailers are immune to the negativity purveying the general economy. However, this might not be playing out.
Tiffany & Co. just released its earnings guidance for the full fiscal year, coming in at $3.20–$3.40 per share. This is dramatically reduced from earlier guidance of $3.55–$3.75. (Source: “Tiffany Reports Its Third Quarter Financial Results,” Tiffany & Co., November 29, 2012.)
For the 2012 third quarter, which ended October 31, the company said that corporate earnings fell 30.0% year-over-year to $63.0 million. Two areas of concern are the decrease in gross margins to 54.4% in third-quarter 2012, compared to 57.9% last year; and the significant increase in inventory to $2.3 billion at the end of the quarter, up 11.0% year-over-year.
“Clearly, the decrease in guidance is a shock to investor sentiment. The market view had been expecting a company like Tiffany’s to weather the storm building internationally. Obviously, this is not the case, and with such a large increase in inventory and a continued decline in profit margins, the situation might be getting worse,” Cekerevac adds.
The shift in guidance has meant a substantial decrease in the market view of the stock, subsequently leading to a drop in price. The stock has fallen to its 50.0% retracement level, at approximately $59.00 per share.
Cekerevac comments, “Investor sentiment will need to see a substantial increase in future prospects of the company for the price of its shares to begin moving up once again … even following this decrease, the market view might still be somewhat optimistic, considering the inventory build-up.”
He concludes, “Considering the fiscal uncertainty in America, as well as the constant financial mess in Europe and the questionable growth rate of China’s economy, it will take a substantial amount of momentum for investor sentiment to regain its previous level of confidence.” He is cautious with his market view for Tiffany’s and many other retail stocks at this moment.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, and to get its popular Profit Confidential e-letter sent to you daily, visit http://www.profitconfidential.com. Or, visit http://www.lombardipublishing.com/customer-service.html.