Noting Pacific Sunwear of California (NASDAQ:PSUN) has improved their product line and store environment, Needham still sees them as weak until they can generate sustainably wider margins and consistent sales.
Needham, which maintains a "Hold" rating on Pacific, said, "At -0.4x P/sales and -1.6x P/book, respectively PSUN is trading significantly below the sector averages of 1.1x and 2.7x. While we agree both store environment and merchandise assortment has begun to improve at PacSun, the Junior’s business continues to struggle. We would like to see more evidence that a margin recovery is underway or stronger sales momentum, before we become more positive on the stock. We no longer think that liquidity is a concern, given the availability of credit and ability to generate cash, even on depressed sales levels."
Pacific closed Tuesday at $5.95, dropping $0.32, or 5.10 percent. Trading volume was almost double the 3-month daily average.
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