Market Overview

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


Growth at Kate Spade & Co (NYSE: 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 (NYSE: 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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