Piper Jaffray Ups Michael Kors To Overweight: Says Brand Is More Stable Than Previously Thought

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Piper Jaffray’s Erinn E. Murphy believes that following the recent share buyback and given the 8 percent free cash flow yield, the current valuation for Michael Kors Holdings Ltd KORS offers an attractive entry point.

Murphy upgraded the rating on the company from Neutral to Overweight, with a price target of $67.

Stable Footing

The analyst mentioned the recent checks in the U.S. and Chine, along with Piper Jaffray’s Teen Survey, suggest that the Michael Kors brand was on a “more stable footing on a global scale.”

“Our Teen Survey highlights KORS as the No. 1 handbag brand with sequentially improving share and our wholesale checks domestically suggest the brand is not losing major space. Furthermore, recent meetings with management in China were positive on global momentum,” Murphy stated.

In the watch category, the survey revealed that Michael Kors was on the No. 2 position, with 22 percent mindshare.

Low Near Term Pressure

“One concern we have voiced before is the distribution network KORS has in NA wholesale, noting the brand needs to be rationalized by 10-15 percent,” Murphy pointed out.

Although this might still occur with time, the analyst said that checks suggest that the brand was not losing significant square footage in 2016.

“Bottom line, new growth initiatives can partially offset the lower OTB dollars in general across the industry. We are comfortable with our NA wholesale estimate of -3 percent in FY17,” the Piper Jaffray report added.

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Posted In: Analyst ColorLong IdeasUpgradesAnalyst RatingsTrading IdeasErinn E. MurphyPiper Jaffray
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