Wedbush Initiates On 3 Luxury Retailers

Wedbush on Wednesday afternoon initiated coverage on three luxury retailers.

Below are highlights on each company from analysts Morry Brown and Taryn Kuida along with ratings and price targets.

Kate Spade & Co KATE - Outperform, $39 price target

Brown felt that early stage growth and margin expansion opportunities were not fully factored into share price.

“We see a healthy brand generating $2.00 in earnings power by 2018 (up from non-GAAP $0.25 in 2014) through a combination of continued comp increases, domestic unit growth, international growth and EBIT margin expansion,” according to the analysts.

The company was better positioned than its peers to outperform in a more challenging environment due to its earlier stage of growth. “KATE can significantly grow its business by taking a relatively small amount of market share, while larger players are more dependent on category growth trends to move the needle,” Brown wrote.

Additionally, the company’s higher-end distribution was also cited by Brown with its wholesale exposure “largely at higher-end stores like Nordstrom and Neiman Marcus, we believe discounting among mid-tier department stores is likely to have a relatively smaller impact on KATE’s business.”

Kate Spade closed at $28.02, down 4.53 percent.

Coach Inc COH - Neutral, $37 price target

The analysts felt that Coach’s share price already fully valued the company’s turn around prospects and had also factored in “steadily improving comp and margin trends over the coming four to six quarters.”

“We generally view the strategy embedded within the company’s transformational plan constructively but note (1) turning a brand around in the minds of consumers is a challenging undertaking and (2) near-term sales improvement is unlikely to be linear,” according to Brown.

The firm's 2016 EPS estimate was $1.88 versus the consensus of $1.99.

Coach closed at $38.13, down 0.47 percent.

Michael Kors Holdings Ltd KORS - Neutral, $63 price target

The analysts felt the stock was “on sale” at current levels, however, the was no catalyst in sight to left the shares from the “value bin.”

“Prevailing bearish sentiment and significant market-implied earnings cuts provide a meaningful upside opportunity in KORS shares for investors able to accurately time a stabilization in key operating metrics,” Brown said.

The analysts thought it was too early to make a call on stabilization due to “(1) steady sequential slowing in SSS, traffic and EBIT margin in recent quarters, (2) higher promotions in the handbag category, particularly within the department store channel and (3) margin pressure from infrastructure investments.”

The firm's FY2016 EPS estimate was "modestly" below the consensus of $4.65.

Michael Kors closed at $61.10, down 1.69 percent.