Blue Nile: MKM Downgrades

MKM Partners analyst Tim Boyd this morning reduced his rating on Internet diamond retailer Blue Nile (NILE) to Neutral from Buy.

“While we continue to view NILE as having above-average long- term growth potential, we are not comfortable maintaining a Buy rating ahead of what appears likely to be a soft Q3 report,” he writes in a research note. “NILE�s above-average headline valuation (vs. the Internet sector) and intra-quarter under-performance vs. the S&P 500 (down 11% vs. up 5%, respectively) represent additional reasons to be cautious, in our view.”

Boyd now sees 2011 EPS of 90 cents a share, below the Street at $1.14; for 2012, he expects $1.06, below the Street at $1.45.

He puts fair value on the stock at $42, a bit below yesterday’s close.

NILE this morning is down 50 cents, or 1.2%, to $41.82.