Through The Fly's Eyes: Men's Wearhouse

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.












A Tradition of Sartorial Reliability

No matter how often trendy designers try to push them off on new tangents, men naturally gravitate back to the fashion equilibrium of a good suit. There is a Houston-based firm that maintains reliability and quality along that line, in shops throughout North America.

The Men's Wearhouse, Inc. (MW) is a specialty retailer of men's clothing and accessories in the United States and Canada. The company's U.S. chain consists of 636 stores in 44 states, operating under the names Men's Wearhouse and K&G. The firm's Canadian chain includes 116 stores in all ten provinces, operating under the Moores banner. The stores offer a broad selection of designer, brand name and private label men's business wear, including a consistent stock of core offerings. The K&G subsidiary caters to more price sensitive customers and sells ladies' career apparel in about half the stores.

The firm pleased shareholders last week, when it announced solid Q4 results and issued Q1 and FY08 EPS guidance well above Wall Street views. Also, the Board of Directors approved a 20% increase in the company's quarterly cash dividend. The MW price popped through 30-day moving average resistance on the news and has since begun to define a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with five "strong buys," three "buys" and one "hold." Recent price targets are in the $50-$60 range. Analysts see a 15% average annual growth rate, through the next 5 years. The stock's P/E ratio (17.30), PEG ratio (1.16), Price to Sales ratio (1.32), Price to Book ratio (3.30), Price to Cash Flow ratio (11.81), EPS Growth rate (20.90%) Return on Assets (13.38%) and Return on Investment (16.92%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $29.81 and $48.32. A stop-loss of $40.85 looks good here.