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Zale Corporation (ZLC): Shares define bullish 'pennant' formation

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Zale Corporation (NYSE: ZLC) is a specialty retailer of fine jewelry, operating over 2,100 retail locations throughout the United States, Canada and Puerto Rico. Company brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. The firm also operates Zales and Gordon's websites. Wal-Mart (NYSE: WMT) is a major competitor.

The firm surprised investors late last month, when it reported a Q4 loss of 48 cents and revenues of $456.2 million. Analysts had been looking for a loss of 57 cents and $448.9 million. There was a 6.1% year over year increase in Q4 comparable store sales. Management also guided FY09 EPS to $1.10-$1.25, versus Street consensus of 90 cents. The CEO spoke of implementing programs designed to simplify product assortment and eliminate organizational redundancies.

ZLC shares popped on the news and then passed into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with one "strong buy", one "buy", three "holds" and one "underperform". Analysts see a 30% growth rate, through the next year. The ZLC Price to Sales ratio (0.45) and Price to Book ratio (1.61) compare favorably with industry, sector and S&P 500 averages. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $12.48 and $29.19. A stop-loss of $24.50 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in either of the stocks mentioned above.

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Last updated: November 14, 2009: 09:47 AM

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