Ahead of the Bell: Analyst ups Bare Escentuals

Citi Investment Research analyst Wendy Nicholson upgraded the stock to "Buy" from "Hold."

She said shares have declined about 50 percent over the last year, likely on economic concerns and slowing productivity, among other factors. But Nicholson doesn't think these issues will stop the company from meeting its goal of 20 percent earnings and revenue growth in 2008.

"While Bare's management has indicated that they believe they are faring well, given the challenging macro environment, they have also cited this as one of the reasons they are maintaining their guidance for top-line growth in 2008, despite the distribution gains they are expecting," Nicholson wrote in a client note.

Nicholson said same-store sales at department stores have been weak, and thinks investors are worried about the sales growth that Bare can achieve in its premium wholesale channel. But most of Bare's premium wholesale business comes from specialty retailers, Nicholson said, where sales growth has been stronger.

Nicholson expects double-digit sales, operating profit and earnings growth over the next few years by expanding distribution in domestic and international markets.