Market Overview

One Last Flash Sale? Wells Fargo Weighs In On Kate Spade Takeover Talk

One Last Flash Sale? Wells Fargo Weighs In On Kate Spade Takeover Talk
Related KATE
M&A Roundup: 7 Deals Expected To Close Mid-2017
The Bag With The Swag: Coach Initiated At Buy After 'Game-Changer' Kate Spade Acquisition

Shares of Kate Spade & Co (NYSE: KATE) gained more than 12 percent on Thursday after the company confirmed it is evaluating strategic alternatives.

Various media reports suggested late last year that the company is preparing for a sale of itself and expects to start a bidding process in the very near term. The company has also faced pressure from activist investor and large shareholder Caerus Investors, which has become annoyed with the stock's ongoing decline.

Related Link: Kate Spade Is For Sale; Wunderlich Says 'We Believe It Will Happen'

Analyst: Sale Is 'Likely'

Ike Boruchow of Wells Fargo believes that Kate Spade will be able to attract a buyer for several reasons:

    1. Kate Spade's brand remains "relatively healthy" and is actually gaining share in the luxury goods segment.
    2. The company has a "meaningful opportunity to expand its wholesale distribution which has been a relative outperform without the need of increased promotional activity."
    3. Margins remain 5 to 7 points below its peers and can rise higher.
    4. The stock's multiple remains "compelling" even after Thursday's more than 10 percent gain.

Bottom line, Boruchow suggested that Kate Spade's holiday results which were also reported on Thursday prove that the brand "has plenty of runway on the topline," and the brand is powerful enough to generate ample synergies for multi-national buyers. As such the analyst sees "a potential sale catalyst as increasingly likely."

Shares remain Outperform rated with a valuation range per share boosted to $24–$25 from a previous $23–$24.

At last check, shares of Kate Spade were up 14.69 percent at $22.56.

Image Credit: By Jim.henderson (Own work) [CC0], via Wikimedia Commons

Latest Ratings for KATE

May 2017Wells FargoDowngradesOutperformMarket Perform
May 2017KeyBancDowngradesOverweightSector Weight
May 2017NomuraDowngradesBuyNeutral

View More Analyst Ratings for KATE
View the Latest Analyst Ratings

Posted-In: Ike Boruchow Kate SpadeAnalyst Color Analyst Ratings Movers Best of Benzinga


Related Articles (KATE)

View Comments and Join the Discussion!