Bank Of America Slaps The Children's Place With A Downgrade

Childrens Place Inc PLCE reported an earnings beat in its fourth quarter results, but other metrics were disappointing and prompted Bank of America to turn bearish on the stock.

The Analyst

Bank of America's Stephen Albert downgraded Childrens Place's stock from Buy to Underperform with a price target slashed from $175 to $115.

The Thesis

A large part of the bullish case for owning Childrens Place's heading into this week's earnings report was a re-launch of its private label credit card in October of 2016, Albert said in the note. In fact, 140 percent of the company's revenue growth and up to 45 percent of net EBIT dollar growth in 2017 can be directly linked to new card agreements. The company still faces an "outsized growth" opportunity in its private label card, but it won't be as much as a tailwind in 2019 and 2020 when comps would need to accelerate.

Meanwhile, Albert said Childrens Place's management guided its fiscal 2018 core EPS to be higher by 2 to 6 percent versus a growth rate of 51 percent in 2016 and 28 percent in 2017 due to a ramp in investment spending. Specifically, SG&A is expected to be 6 percent higher in 2017 on top of a 2 percent increase in 2017, while D&A will grow 9 percent in 2018 versus 4 percent in 2017.

Price Action

Shares of Childrens Place were trading lower by 3.5 percent at $127.35.

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