Stock Picks: JCG Up; EBAY Down

Investors tried on shares of J. Crew Group (JCG) Thursday after the apparel maker said it now expected better third quarter profits and a high single-digit increase in its same-store sales for the fourth quarter. Shares popped 13% by midday.

The clothier and retailer raised its earnings guidance, saying it now expects earnings in a range of 54 cents a share to 59 cents a share as compared to its previously estimated range of 30 cents a share to 33 cents a share. It earned 30 cents a share in the year-ago third quarter and will report earnings next month.

"The company's outlook for the fourth quarter is based on the expectation that current trends in the third quarter will continue," J. Crew said in a prepared statement, though it noted that was not a certainty.

Jesup & Lamont analyst Barbara Wycoff initiated coverage on the stock Thursday, rating it Buy.

"JCG’s upscale product at good values has sold through well this fall with customers seeking newness, novelty and color," she wrote "Our channel checks continue to see good store traffic and conversions and a broad range of customers."

John Morris, an analyst at BMO Capital Markets, saw the company as one of retail's brighter spots in a sector with murky prospects for the peak shopping season.

"From both a product and inventory standpoint, in our view, J. Crew is well positioned heading into holiday," he wrote, citing "the likelihood that a good fall typically bodes well for a good holiday, since the fashion doesn’t change much."

Bottom Line: Buy
If J. Crew breaks few fashion boundaries, the stock appears ahead of the pack.

Investors on Thursday brought the hammer down on eBay (EBAY) after the online auction site said margins declined; that dropped profits and sent shares sliding 6% by midday.

A weakened outlook for the current quarter and a 29% drop in third-quarter earnings sowed some doubt in investors, who've applauded the company's turnaround plans, which include selling a 65% stake in its Skype telephony business. "Our strategies are working, and I continue to be pleased with our pace, our progress, and our performance," CEO John Donohoe said in a Wednesday evening conference call. "Our teams are executing well against the three-year growth strategies we outlined earlier this year."

He said PayPal continues to gain share and drive strong global growth, and the core eBay marketplace business has stabilized and is beginning to show some positive trends.

Frederick Moran, an analyst with the Benchmark Company, said the company was scrambling to keep its footing in tough times. " Essentially, eBay is lowering listing fees in order to drive greater quantity and selection but this has lowered average selling price and aligned eBay’s successes more with sale fees,” he wrote. “In addition, eBay is upgrading search, convenience and safety functions. As gross merchandise value (GMV) on eBay’s marketplace has declined, so have revenues."

Gabelli & Co. analyst Rober Haley was more upbeat about eBay's prospects. "We continue to view eBay as a collection of leading e-commerce businesses with strong consumer brands and critical mass generated network effects," he wrote. "The marketplaces segment is showing signs of a turnaround, PayPal continues to grow strongly, and the pending sale of Skype monetizes a non-core asset. Valuation remains attractive."

Bottom Line: Hold
EBay has struggled to reorganize in the absence of a booming commercial environment, so it's best to wait and see if the changes take hold once people start buying and selling more often.