Retail Stock Poised to Double by 2013

Barnes & Noble (BKS) could double its stock price by 2013, according to an analyst.

"We believe as the market understands and appreciates the digital opportunity for the company and the sustainability of EBITDA at the store level, at least in the next few years the stock will prove to be one of the top performing retail/tech names in the market," Janney Capital Markets analyst David Strasser wrote in a note.

Strasser believes that the success of the Nook, which holds a 27% market share in e-books, is not priced into the current valuation.

Barnes & Noble launched its Nook Tablet earlier in the week, directly taking on Amazon's (AMZN) Kindle Fire. The device, priced at $249, is $50 more expensive than the Fire, but Barnes & Noble touts the Nook as being a superior tablet due to its larger memory, screen display and the quality of the content.

"We believe the comparisons of Nook and Kindle are overblown, as each appeal to a separate target market," Strasser said. "In fact, we view the recent success of the Kindle Fire as bullish for Barnes & Noble in that it validates the demand for the 7-inch form factor at that price point with certain functionality."

Barnes & Noble appears to be targeting the suburban woman with multiple children, choosing to advertise the product during Desperate Housewives and Dancing With the Stars. In comparison, Amazon is advertising the Fire during NFL games, Strasser noted.

"In our opinion, many misunderstand Barnes & Noble's presence and importance in Middle America, and underestimate its broad customer reach, particularly within the 58 million target market," Strasser wrote. "This isn't a one-horse race; both Amazon and Barnes & Noble can capture their target markets and flourish with the explosive growth of digital content over the next five years."

Strasser estimates B! arnes & Noble will sell about 1.6 million Nook Tablets during the holiday quarter.

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"We saw the new Nook Tablet and believe they will maintain, if not grow market share over the next year perhaps at the near-term expense of gross margin, but post-holiday, the shift from predominantly Nook sales to a more balanced mix with e-books and other digital content will drive dramatic improvement in gross margin and gross profit dollars in calendar 2012," Strasser wrote.

The closure of rival Borders earlier this year should also benefit the book chain. The company has been aggressively going after these displaced Borders' customers, purchasing its customer file and sending marketing emails to prior Borders' shoppers.

Strasser also believe Barnes & Noble is getting closer to announcing international expansion. He expects the company will begin to partner with local book retailers in Western Europe in 2012 and will most likely begin in the U.K.

In the past, management mentioned that it wanted to solidify its U.S. penetration before expanding elsewhere, and it is clear that level of comfort is not far away," he wrote.

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