Does Tiffany Really Sparkle?

By Glenn Curtis | January 15, 2010 AAA

Many people remain quite concerned about the state of the economy and their own situation and ability to earn a living going forward. For this reason, it's not unreasonable to be wary about the prospects for high-end stores over the next year. With that as a backdrop, let's discuss news that came out this past week that Tiffany (NYSE: TIF), the company known around the world for its beautiful jewelry, raised its full-year EPS outlook.

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Tiffany's To Shine?
Again, many are not overly enthused about the near-term prospects for upper-crust stores largely because of the economy. At the very least, many are skittish because they think results may be volatile. However, Tiffany and its shareholders seem to be doing just fine despite some of the aforementioned concerns.

As evidence, its share price is trading near its 52-week high, and this past week it came out and said it's looking for $2.07 to $2.12 a share from continuing operations for the year. That's a nice jump from the $1.88 to $1.98 it had called for before. (Note that its Q4 numbers are due out March 22.) My hunch is that on the heels of this news, some analysts may raise their estimates, which could in turn drive further interest in the shares.

Beyond that, again the stock is trading near its high, and some fund managers could well consider that an attractive feature. As I've pointed out, some like to add such stocks to their portfolios for window dressing and/or in hopes that upward momentum will continue. Again, analysts may also get excited by the recent news and push up their estimates, which could be a positive for current shareholders.

Going forward, on the earnings front things look good, too, despite concerns. Currently the New York-based company is expected to earn $2.38 per share next year (fiscal year ending January 2011), and that would be good growth given the economy and this type of business. Overall, as a result of all this, I see some upside potential for the stock from the current price level.

Other Jewelry Plays
Zale Corp. (NYSE: ZLC) has a big name, but unfortunately it also has some features that aren't quite so attractive. For example, it trades under $5, which may keep it off the radar screens of some investors, and the near-term earnings outlook seems to be lacking. It's expected to post a $3.74 loss this year.

Although not considered by most to be a direct competitor, Macy's (NYSE: M) sells jewelry that is reasonably priced and of high quality, and it's worth a look. It trades at 11.2 times next year's estimate. Finally, J.C. Penney (NYSE: JCP) is worth closer inspection. With the economy showing continuing signs of life, department stores should come back into fashion. And J.C. Penney sells jewelry. No, not super high-end stuff, but affordable merchandise that the masses tend to like. The stock isn't too cheap, though, as it trades at 17.6 times next year's estimate. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

Bottom Line
Although higher-end retailers may see some volatile results in the near term, Tiffany has been getting the job done, and it offered a solid outlook for the year. With momentum, investors are likely to jump on board at these levels. With a good opportunity for growth going forward, the stock could very well turn out to be as sparkly as one of its precious diamonds.

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