On Monday, Capri Holdings (NYSE:CPRI) received an upgrade in its stock rating from Neutral to Buy by an analyst at Citi, with a revised price target set at $41, down from the previous $56.
The upgrade comes despite the company's recent weak performance, with the analyst citing a positive risk/reward skew. The optimism is partly based on an ongoing acquisition deal where Tapestry Inc. (NYSE:TPR) has agreed to purchase Capri Holdings at $57 per share.
The deal has already gained approval in Europe and Japan, but it met a roadblock in the United States when the Federal Trade Commission (FTC) filed a lawsuit to challenge it, with a trial set for September.
However, the analyst notes that Tapestry management remains committed to the acquisition and expresses skepticism about the merits of the FTC's lawsuit. With Capri Holdings' shares currently priced at $31.70, which is 8% lower than before the acquisition announcement, the analyst believes the potential rewards outweigh the risks.
The current stock price reflects a significant discount compared to the agreed acquisition price, and the analyst has factored in a scenario where the deal might not proceed.
Despite this, a probability-weighted price target suggests a considerable upside. The potential for an 80% upside is seen as substantially outweighing the downside risk estimated at 25%.
The analyst's position is buoyed by the belief that the market has not fully appreciated the likelihood of the acquisition's completion, despite the legal challenge. This view is predicated on the commitment of Tapestry's management to the deal and the perceived weakness of the FTC's case. The Citi analyst's assessment concludes that at the current trading price, Capri Holdings presents an attractive investment opportunity.
In other recent news, Capri Holdings reported fourth-quarter sales and earnings per share that significantly fell short of analysts' expectations. The company's sales trends are facing challenges, and promotional activities have increased.
The operating income rate showed a steeper year-on-year decline this quarter, falling 36% compared to the 33% drop in the previous quarter. Amid these developments, Jefferies adjusted its outlook on Capri Holdings, reducing the stock price target to $38 from the previous $57, while maintaining a Hold rating on the stock.
In addition, Capri Holdings is in the spotlight due to a potential acquisition by TPR. The acquisition, approved by the European Commission and Japan's JFTC, is currently awaiting the verdict of U.S. antitrust regulators. Despite challenges from the Federal Trade Commission (FTC), management at Capri Holdings is expected to continue to advocate for the acquisition.
These are recent developments that have shaped the narrative around Capri Holdings, providing investors with crucial insights into the company's financial health and strategic direction.
InvestingPro Insights
In light of the recent upgrade of Capri Holdings (NYSE:CPRI) by a Citi analyst, real-time data from InvestingPro offers additional insights. The market capitalization stands at a solid $3.7 billion, showcasing the company's substantial size in the industry. Despite facing challenges, Capri Holdings boasts impressive gross profit margins of 64.58% over the last twelve months as of Q4 2024, indicating efficient operations and cost management. However, it's important to note that the company has experienced a revenue decline of 7.99% during the same period, reflecting some of the headwinds the business is currently navigating.
An InvestingPro Tip highlights that Capri Holdings' net income is expected to grow this year, providing a silver lining amidst the recent stock price volatility and the ongoing acquisition deal with Tapestry Inc. Moreover, the Relative Strength Index (RSI) suggests the stock is in oversold territory, which could signal a potential buying opportunity for investors considering the current discounted price relative to the acquisition offer.
For those looking to delve deeper into Capri Holdings' financials and future prospects, InvestingPro offers additional tips and metrics, including analyst revisions and profitability predictions. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a total of 11 additional InvestingPro Tips for Capri Holdings.
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