Cache Share Price Reflects Ups

Cache, Inc. (CACH - Snapshot Report) continues to perform well in the difficult macro environment that has created headwinds that are negatively affecting the consumer. These headwinds include falling house prices, record levels of debt, and rising food and energy prices, which will continue to offset the strength in the company’s core Cache store concept, its direct sourcing efforts, and its solid balance sheet. We reiterate our Hold rating.

The company’s choice to close its poorly performing Lillie Rubin stores was a smart strategic decision that should lead to better results in future quarters. The acquisition of its largest supplier Adrienne Victoria Designs will help the company improve its direct sourcing efforts and expand its merchandising efforts.

CACH shares are up about 55% year-to-date, and that reflects much of the positives associated with its business. CACH shares are trading at 26.8x our 2008 EPS estimate and 21.3x our 2009 EPS estimate.

If we ex-out the company’s $1.70/share in net cash, CACH shares are trading around 18x to 19x our 2009 EPS estimate, which is a slight premium to our estimate of Cache’s long-term earnings growth rate. This will limit the stock’s upside even if it the company beats estimate, as it did in the second quarter. We think the stock is fairly valued at these levels. Our target price is $15, which is 22x our 2009 EPS estimate.

Read the full analyst report on CACH