PVH

Tommy Hilfiger, Calvin Klein Owner PVH Beats Earnings Estimates; Target Price $95 in Best Case

PVH Corp, one of the world’s largest apparel companies, reported a better-than-expected profit in the third quarter, largely driven by strong demand from Europe and China for its Calvin Klein and Tommy Hilfiger brands, sending shares up about 6% on Thursday.

The global apparel company said its revenue declined 18% to $2.118 billion compared to the prior-year period. The Company’s revenue through digital channels grew 36%, with sales through its directly operated digital commerce businesses up 70% compared to the prior-year period.

PVH said its EPS came in at $0.98 on a GAAP basis and $1.32 on a non-GAAP basis, way above the Wall Street consensus of $0.24.

“Despite poor sales in North America, no-moat PVH beat our revenue and earnings expectations for 2020’s third quarter on 6% growth in China, solid sales in Europe, and 36% digital growth. Total revenue dropped 18%, but this was better than our forecast of a 23% decline. The pandemic continues to impact PVH in Europe and, especially, North America, where many retail stores have suffered from the 95% drop in international tourism (normally about 35%-40% of the region’s sales),” said David Swartz, equity analyst at Morningstar.

“While PVH’s shares jumped about 9% on the report, we continue to view it as undervalued. We think Calvin Klein and Tommy Hilfiger have growing international appeal and do not believe PVH is in any danger of falling into financial distress, having closed the quarter with $2.7 billion in liquidity. We expect to increase our per share fair value estimate of $108 by a mid-single-digit percentage,” Swartz added.

The clothing company forecasts revenue and earnings will continue to be negatively impacted by the COVID-19 pandemic its fourth-quarter; although there is uncertainty due to resurgences throughout Europe and North America, the company currently expects revenue in the fourth quarter to decline nearly 20% compared to the prior year.

PVH Corp’s shares closed 5.82% higher at $88.14 on Thursday. However, the stock is down about 16% so far this year.

PVH Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $86.50 with a high forecast of $95.00 and a low forecast of $66.00. The average price target represents a -1.86% decrease from the last price of $88.14. From those eight analysts, four rated “Buy”, three rated “Hold”, one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $104 with a high of $152 under a bull-case scenario and $63 under the worst-case scenario. The firm currently has an “Overweight” rating on the clothing company’ stock.

“We leave the print incrementally positive on international recovery, particularly as TH & CK international margins expanded y/y (+179, +427 bps y/y). At the same time, management impressively navigates a tough NA wholesale environment, while supercharging its profitable digital channel,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

Several other analysts have also upgraded their stock outlook. Royal Bank of Canada increased their target price on PVH from $48.00 to $65.00 and gave the company a sector perform rating. Telsey Advisory Group raised the price target to $105 from $96. Barclays upped the target price to $95 from $75. Citigroup increased their stock price forecast to $92 from $62. RBC raised the target price to $90 from $65. Evercore ISI raised the target price to $90 from $70.

Analyst Comments

“Given recent negative U.S. traffic data points, we revise forecasts down to account for coronavirus-induced demand suppression, as well as a potential recession during 2020. PVH’s proven global growth track record suggests its CK Europe and TH Asia businesses should add more than $850 million in revenue and more than $100 million in EBIT over the next 5 years,” said Kimberly Greenberger, equity analyst at Morgan Stanley.

“We see growth through several underpenetrated categories in Europe as well as China, particularly with women’s more broadly, jeans, underwear, and performance/sportswear. Beyond revenue growth, we see a compelling opportunity for margin improvement. We see an opportunity over the next 18-24 months for the CK business to expand margins by 200 bps,” Greenberger added.

Upside and Downside Risks

Risks to Upside: 1) Compelling future license acquisitions accelerate sales growth beyond what we have modelled. 2) FX headwinds prove more muted than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) Macro weakness European markets and the Chinese economy hampers PVH’s international growth. 2) PVH’s insulation to the continued downsizing of key US department store wholesale partners proves weaker than expected.

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