Citi: Columbia Sportswear A Potential LBO Target

Columbia Sportswear Company's COLM low debt, moderate price and potential margin expansion make it a candidate for a leveraged buyout, according to Citi's Kate McShane.

Moreover, sales growth and cost controls could drive Columbia's margins to their widest spread since 2005, McShane said Wednesday.

Columbia gained 2.8 percent recently, trading at $42.81 per share.

McShane upgraded the apparel manufacturer to Buy, from Neutral Wednesday, boosting her price target to $48, from $42.

McShane noted Columbia's shares are up 18 percent since mid-October, and are near their three-year average relative to earnings expectations.

The company is ranked seventh on a list of potential LBOs among footwear and apparel makers compiled by Citi based on price, debt levels, potential operational improvements and on whether a company is "truly for sale," McShane said.

The thesis that Columbia's line of outerwear should help drive its growth got backing from a recent Citi survey of retailers that showed pricing increases driving up results for the category by the mid-single digits, on flat unit growth.

Sporting goods and outdoor specialty stores selling "higher priced technical product" and heavier-weight garments "appeared to be faring slightly better" than retailers in general, McShane said of survey results.

Columbia has said it expects 2014 sales growth of 22 percent and "double-digit" growth in 2015 along with a wider profit margin.