Morgan Stanley Calls Michael Kors A 'Compelling Entry Point For High Quality Growth'

In a report published Monday, Morgan Stanley provided a preview for Michael Kors Holdings Ltd’s KORS third-quarter earnings. The firm expects EPS beats with in-line to slightly better comparable same-store sales.

Morgan Stanley’s 12-13 percent total company comp “implies a 10% North America comp growth and +25% Europe comp,” assuming slight deceleration in both markets.

For the third quarter of fiscal 2015, the research firm expects EPS of $1.34, versus $1.11 posted in the same quarter last year. For the next quarter (Q4FY15) analysts project EPS of $0.94 (vs. $0.78 last year). For the upcoming fiscal year (FY16), they see 13 percent EPS growth.

The firm sees Michael Kors’ valuation as “extremely compelling,” and rate its stock Overweight, with a $105 price target.

In addition, the report states that “store checks suggest expected promotional normalization,” meaning that “as the bran matures in North America (’14 MSe Sales $3.3B),” analysts expect “retail gross margin continues to moderate.” However, the report also points out that gross margin remains a key focus for the third quarter. The firm expects “higher margin Europe (primarily due to lower wholesale allowances) grows to ~20% of wholesale sales in FY15 (from 15% in FY14)."

Shares traded recently at $69.62, up 0.42 percent.