Buckingham Starts Kate Spade At Buy With 31% Upside, Upbeat On Guidance

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Growth at Kate Spade & Co KATE could outpace growth of the global accessories market. Buckingham Research Group’s Scott Krasik initiated coverage of the company with a Buy rating and a price target of $31. The analyst mentioned that the price target implies 31 percent upside from current levels.

Analyst Scott Krasik believes that Kate Space is poised to generate a double-digit growth in revenue, EBITDA and free cash flow, despite the global accessories market likely to grow at a low-single-digit rate at best.

Discount To Growth Retailers

Although Kate Spade’s shares are trading at similar multiples to shares of Coach Inc COH, the former company’s growth prospects are superior, Krasik commented. Kate Spade has higher sales growth prospects and more margin upside.

“On an EV/EBITDA basis, KATE trades at an ~2 turn discount to the median multiple of this group [high growth retailers] despite a growth forecast that is 40% higher than the median expected growth for the group,” the analyst wrote.

Krasik believes Kate Spade would be able to achieve its full-year guidance, which could be “a catalyst to drive multiple expansion going forward.” He added that there was “meaningful upside from here” and that the risk/reward is favorable.

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Posted In: Analyst ColorLong IdeasInitiationAnalyst RatingsTrading IdeasBuckingham Research GroupScott Krasik
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