Brean: Eight Branded Apparel, Footwear Stocks Worth Buying

  • Brean Capital has initiated coverage at Buy for eight stocks in the branded apparel and footwear space.
  • Despite stretched valuations, the firm sees five key growth themes in the industry over the next two years.
  • Leading companies will continue to focus on high-margin, direct-to-customer services and international business.
  • Brean Capital has initiated coverage on branded apparel and footwear stocks. In a new report, analyst Eric Tracy discussed what Brean sees ahead for the industry and which stocks the firm thinks investors should be buying now.

    Valuations Stretched

    Tracy acknowledged that multiple expansion has stretched the valuations of many names in the space in recent years, but still sees plenty of opportunity for choosy buyers.

    “We recommend that investors focus on names with attractive risk/reward and sound fundamentals, driven by visible top-line growth (share gainers domestically, realistic global expansion), accretive margin levers (pricing power, supply chain, mix shifts to higher-margin DTC/International) and productive capital allocation (balance funding growth with returns to shareholders in buyback/dividend).”

    Related Link: Morgan Stanley Calls Nike's Analyst Day "Very Bullish," Maintained As Top Pick

    Growth Themes

    Brean sees five key themes that will drive earnings in the industry over the next two years:

    • 1. Direct-to-consumer (DTC)/international accretive mix shifts
    • 2. Omni-channel evolution
    • 3. Manufacturing and supply chain innovation
    • 4. Product innovation
    • 5. Capital allocation

    In particular, Tracy highlighted that DTC operations and international business typically offer major growth opportunities at extremely high margins.

    Athleisure

    In the past several years, the emergence of athletic clothing worn as leisure wear has created a new category that Brean calls “athleisure.” However, the firm sees this trend as more cyclical than secular, and calls for growth in the area to slow as the market becomes saturated beginning in 2016.

    Stock Picks

    Overall, Brean is mostly bullish on the space. The firm initiated Buy ratings on the following eight stocks:

  • Nike IncNKE
  • Under Armour Inc UA
  • VF Corp VFC
  • PVH Corp PVH
  • Deckers Outdoor Corp DECK
  • Hanesbrands Inc. HBI
  • Dicks Sporting Goods Inc DKS
  • Foot Locker, Inc. FL
  • Disclosure: The author holds no position in the stocks mentioned.

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    Posted In: Analyst ColorLong IdeasAnalyst RatingsTrading IdeasAthleisurebranded apparel and footwearBrean CapitalEric Tracy
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