On Wednesday, CFRA raised its rating on PVH Corp (NYSE:PVH) stock from Buy to Strong Buy, maintaining a price target of $138.00. The upgrade reflects the firm's confidence in the apparel company's expanding margins and profitability, which is expected to lead to increased capital returns.
The analyst cited PVH's impressive normalized earnings per share (EPS) for the second quarter, which came in at $3.01 compared to the $1.98 consensus estimate, outperforming by $0.73 on revenues of $2.07 billion.
PVH's quarterly performance showcased a revenue figure marginally above estimates, despite a decline in sales across its brand portfolio. Tommy Hilfiger sales saw a 4% drop, Calvin Klein decreased by 1%, and Heritage Brands took a significant hit with a 60% decline.
Direct-to-consumer (DTC) revenues fell by 6% year-over-year, and wholesale channels experienced a 9% decrease. However, the company's gross margin saw a notable increase, expanding 250 basis points year-over-year to 60.1%.
In light of these results, CFRA has adjusted its EPS estimates for PVH, raising the forecast for FY 25 to $12.00, up by $0.50, and for FY 26 to $13.00, an increase of $0.75. The firm's valuation of PVH is based on a forward price-to-earnings (P/E) multiple of 10.6x for FY 26 (January), which lies between the company's three- and five-year average forward P/E multiples.
The analyst encouraged investors to look beyond the sales decline, attributing it primarily to the divestiture of PVH's Heritage Brands women's intimate business. They emphasized the stock's value, noting that shares are currently trading under 8.0x FY 26 analyst estimates.
The firm's stance indicates a belief that PVH's stock offers significant value for investors due to the company's positive margin trends and the prospect of enhanced capital returns.
In other recent news, PVH Corp, the parent company of Calvin Klein and Tommy Hilfiger, has reported better-than-expected earnings for the second quarter, despite a decline in revenue. The company posted adjusted earnings per share of $3.01, surpassing the analyst estimate of $2.29, with revenue at $2.07 billion.
This strong earnings performance was driven by gross margin expansion, reduced sales to lower margin wholesale accounts, and lower product costs.
BMO Capital has adjusted its outlook on shares of PVH Corp, reducing the price target to $106 from the previous $119 while retaining a Market Perform rating on the stock. This adjustment followed a modest revenue exceedance and a lower than anticipated third-quarter sales forecast. The full-year EPS forecast, however, has been increased due to favorable tax and foreign exchange considerations.
PVH Corp's recent performance indicates a geographical disparity in sales, with North American markets showing resilience amidst international pressures.
The company's updated guidance and revised price target from BMO Capital suggest a cautious outlook for the near term, particularly concerning international sales and earnings potential. PVH Corp's strategy and expectations for the remainder of the fiscal year will be further clarified in the upcoming earnings call.
InvestingPro Insights
CFRA's upgrade to a Strong Buy rating for PVH Corp aligns with several positive indicators reflected in the latest InvestingPro data and tips. The company's management has demonstrated confidence in its financial health through aggressive share buybacks, a move that often signals a belief in the company's undervalued stock and a commitment to delivering value to shareholders. This aligns with CFRA's perspective on the potential for increased capital returns.
InvestingPro data highlights PVH's strong financial metrics with a P/E Ratio of 8.28, reinforcing the view that the stock may be undervalued. An impressive Gross Profit Margin of 58.94% for the last twelve months as of Q1 2023, surpasses the industry average and supports CFRA's remarks on expanding margins. Additionally, the company's solid track record of maintaining dividend payments for 54 consecutive years, as noted in the InvestingPro Tips, underscores its financial resilience and commitment to shareholder returns.
For investors seeking further insights, InvestingPro offers additional tips on PVH, including its high shareholder yield and the prediction by analysts that the company will remain profitable this year. These insights, along with the 33.47% one-year price total return, provide a comprehensive view of the company's financial health and growth potential. To explore these and other tips in detail, investors can visit InvestingPro's dedicated PVH page, which includes a total of 7 tips to guide investment decisions.
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