The Children's Place Big Advantage: Millennial Moms?

It's no secret that the average consumer can greatly influence the success of a brand. And for more specialized companies like Childrens Place Inc PLCE a pure-play children's clothing retailer, that highly influential consumer is likely the Millennial Mom.

Piper Jaffray circulated a company note on Children's Place, updating the firm's view on the company. The firm's return to a constructive thesis, following a downgrade to Neutral in 2015, is supported by external data, according to the report, "The premise of our view is backed by our proprietary survey of moms, and millennial moms in particular, in which Children's Place brand topped the brand preference charts, unseating Carter's."

Rating, Target Price And Justification

The analysts upgraded their rating on Children's Place from a previously held Neutral to Overweight, with a revised price target raised from $69 to $92 per share.

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The revisions were based on three key points:

1. Pricing And Comp Potential: "Despite widespread volatility in traffic, we think PLCE is increasingly becoming a destination of choice for moms. Investments made in multi-channel access (esp mobile) and more robust CRM capabilities position the company for greater mind and market share capture, and continued pricing power."
• 2. "Sales Agnostic" Operational Efficiency Improvements: "With a framework for systems-led improvements to working capital and sales quality, we think PLCE is contemporizing its organization to improve speed, minimize asset displacement and maximize capital utility. Inventories have contracted over the last two years while comps have expanded – evidence of improved product alignment. We think software supporting markdown management, SKU and size optimization, and customer segmentation could add additional efficiency potential to existing inventory investments, lending to product margin expansion."
• 3. Earnings Power Solidified By Incremental Margins: "Our model assumes very low single digit comps and essentially flat sales as store closures persist. We favor the bricks to clicks transition and are also layering in wholesale based revenues, which we expect to be relatively small in terms of volume, but providing a nice additive driver of leverage as it taps the existing cost structure. Our incremental margin assumptions push up near 40 percent, a 10 ppt improvement from the prior 10 year run rate."

Year to date, Children's Place is up roughly 42 percent with a market cap of $1.60 billion. At time of writing, the stock was up 0.52 percent at $78.55.