On Thursday, Citi initiated coverage on Shimamura Co Ltd (TYO:8227:JP), a leading apparel retailer, with a Buy rating and set a price target of JPY10,100. The new price target suggests a forward price-to-earnings ratio (PER) of 17 times the firm's forecasted earnings per share (EPS) for the fiscal year ending in February 2026.
Shimamura's operating profit (OP) had been in decline for three consecutive years up to the fiscal year ending in February 2020, which was largely attributed to an unsuccessful sales strategy. However, following a strategic pivot in the subsequent fiscal year, the company saw a reversal in its fortunes with a strengthening in its product offerings, leading to growth in operating profit and an enhanced earnings capacity.
Citi's forecast for Shimamura's operating profit in the fiscal year ending in February 2027 is JPY64.9 billion, which the firm believes could surpass the market consensus of JPY62 billion. The analyst at Citi indicated that if Shimamura benefits from favorable foreign exchange movements and weather conditions, the company might even achieve its medium-term operating profit target of JPY66 billion.
The coverage initiation by Citi reflects a positive outlook for Shimamura's profit growth potential, as the company appears to be on a trajectory to exceed market expectations following its recent strategic adjustments.
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