Why Vitamin Shoppe Inc Looks Healthy

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Vitamin Shoppe Inc (NYSE: VSI  ) climbed 2% this morning after Goldman Sachs upgraded the health and wellness products retailer from "buy" to "conviction buy."

So what: Along with the upgrade, analyst Stephen Tanal raised his price target to $65 (from $59), representing about 24% worth of upside to Friday's close. While contrarians might be turned off by Vitamin Shoppe's share-price surge in recent months, Tanal believes that there's plenty of room to run given his forecast of strong comparable sales, margin, and EPS growth going forward.

Now what: Goldman expects Vitamin Shoppe's same-store sales growth to accelerate in the fourth quarter and likely top the Wall Street consensus. "2013 EBIT margins are artificially depressed -- owing to heavy investments undertaken to support long-term growth," noted Goldman. "With incremental margin set to inflect, we expect strong margin expansion in the coming quarters, driving acceleration in EPS growth." With Vitamin Shoppe still off about 20% from its 52-week highs and sporting a forward P/E of 18, I'd agree with Goldman that those prospects aren't being baked fully into the valuation. 

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