Michael Kors Valuation 'Continues To Lend Support,' Deutsche Bank Maintains Buy

Michael Kors Holdings Ltd KORS reported fourth quarter financial results above the Street’s consensus on Wednesday morning. However, Deutsche Bank analysts Dave Weiner and Sindhu Chitturi noted, the underlying plan for the ongoing year seemed weak, as management anticipated a return to negative comps and a further contraction in operating margins. Nonetheless, as the stock traded at only ~9x FY17 EPS (8.3x ex cash) into the report, shares rose on Wednesday and Thursday trading, “as expectations were muted.”

Related Link: Michael Kors Gains 8% Following Q4 Print, $1 Billion Share Buyback

Moreover, while Weiner and Chitturi recognize the challenges that still linger, their highlighted the still-low valuation of the shares, which provides the management team with room to carry out new strategies and try to ameliorate the brand’s long term trajectory. “Specifically, this includes meaningfully paring back North America wholesale distribution, focusing on new product development, stabilizing and improving AURs, and investing in CRM,” the note explained.

Consequently, Deutsche Bank reiterated a Buy rating and $56 price target on shares of Michael Kors, which closed at $47.53 on Thursday – meaning that the target still implies an upside potential of 17.8 percent, even after Thursday’s 4.35 percent surge.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.