Myer shares tumbled after its full-year earnings disappointed, with speculation swirling that it could become a takeover target for Premier Investments

Myer shares tumbled after its full-year earnings disappointed, with speculation swirling that it could become a takeover target for Premier Investments. The department store faces increasing competition from international retailers and rejuvenated local brands, which poses a challenge to revenue and margins, as well as a need to continue with capital expenditure to maintain current returns on equity. The cost of doing business as a proportion of sales has risen every year for the last four years and this trend is set to continue. Myer is executing a credible strategy but external pressures threaten to cancel out any benefits. We recently downgraded our FY15 valuation to $1.88, which means Myer is overvalued. The group's outlook for earnings and dividends is stagnant as it spends more to stand still. Read the full analysis: (VIEW LINK)