KeyBanc Cuts Regis to Hold from Buy

Analyst Jeffrey Stein says management is underestimating the impact of lax inventory management

KeyBanc downgraded Regis (RGS) to hold from buy, after the company on Tuesday cut its third quarter earnings per share (EPS) forecast.

Analyst Jeffrey Stein says the company cited weaker-than-expected product and service sales, heightened promotional activity, and more significant than expected discounting. He believes yesterday's news is just another example of management underestimating the impact of lax inventory management. He cut his 55 cents third quarter EPS estimate to 45 cents, his 73 cents fourth quarter EPS estimate to 60 cents, his $2.34 fiscal year 2006 (ending June) estimate to $2.12, and his $2.70 fiscal year 2007 estimate to $2.40. Assuming 15 times to 17 times his revised fiscal year 2007 estimate, he thinks fair value for the stock is between $36 and $41.