Wachovia Upgrades Hot Topic

Analyst Joseph Teklits believes the fashion retailer's operating margin is nearing a low and should start to improve

Wachovia upgrades Hot Topic (HOTT ) to outperform from market perform.

Analyst Joseph Teklits says after running a great race for few years, three out of four categories comped negative for Hot Topic in fiscal 2005 (ending January). However, he says the company now seems to have control of the wheel again, as just two categories are running negative, each showing some improvement.

He believes the worst is over for Hot Topic. He says his $1.00 fiscal 2006 earnings per share estimate assumes flat operating margin and his $1.24 fiscal 2006 estimate incorporates a 70 basis point improvement.

Teklits says, while it's hard to pinpoint when a turn could take place, his instincts say the company's operating margin is nearing a low and we should start to see improvement.

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