Nordstrom Faces Little Upside, Even In Buyout Scenario

Despite a 16.5-percent jump in share price Thursday on news of a possible leveraged buyout, UBS analyst Michael Binetti doubts Nordstrom, Inc. JWN can rise much higher.
“After [Nordstrom’s] stock run on news that the Nordstrom family is exploring privatization, we don’t see much potential for further stock upside,” Binetti said in a note.
The analyst downgraded Nordstrom from Buy to Neutral, with a price target lowered from $51 to $46.
Is This The Best It Can Get?
The Nordstrom family owns 30 percent of the company, which has a $7.5 billion market cap, and would need about $5.5 billion to execute the buyout.
The analyst assumes that to generate a 10-percent internal rate of return, a buyer could only offer shareholders around $46 per share.
The increase seems trivial compared the $44.63 shares closed at on Thursday. Investors who bought in on Jan. 3 would still see about a -7 percent return.
“We believe [Nordstrom] would have to make a compelling case to a sponsor [or] creditor that the market is significantly underestimating the EBITDA trajectory in our 5-year LBO scenario,” said Binetti.
The analyst doubts industry multiples will be higher in five years, citing uncertainty in the department store category.
The biggest effect of the buyout news may just be that it will serve as a catalyst for fresh examinations into companies with founder/family-heavy shareholder structures.