Jeffries: Michael Kors Holdings Ltd's International Story Unappreciated

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Michael Kors Holdings Ltd.'s
KORS
international business is a significant growth opportunity that is under-valued by the stock market, an analyst said Monday. Jeffries' Randal J. Konik said the British-based women's apparel and accessories designer's European revenue should hit $1 billion in fiscal 2016 and $1.5 billion "over the next few years. Kors is off more than 8 percent in the year to date and changed hands recently at $74.12, down $0.49 cents. "There's a lot of energy around the global story," Konik said in a note maintaining a Buy rating and $100 target. In the second quarter ended September 27 European revenue grew about 109 percent to $237.9 million, while North American revenue increased nearly 30 percent to $802.2 million. Revenue in Japan increased 106 percent to $16.5 million. Analysts on average expect total 2016 revenue of $5.3 billion, up 26 percent from an expected $4.42 billion in 2015. Konik said the company expects to open 20 European stores in the current year and is about half way to its goal of operating 200 stores in the region, which he said is "gaining critical mass" as an important part of the company's "investment story." Kors' current profit margins are "arguably unsustainable," according to Konik, adding that the measures may be hurt by the company's "investment" in sales, general and administrative expense. Yet Konik also added that he sees no "meaningful deceleration from peak margins" because of relatively high growth in same-store sales and European market penetration. Jeffries hosted an investor meeting Dec. 19 with Kors' Chief Executive ORS John D. Idol and Chief Financial Officer Joseph B.Parsons. In Konik's view, "holiday sales remain on track and longer-term growth carries this story into next year and beyond."
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Posted In: Price TargetReiterationAnalyst Ratings
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