Wells Fargo On Tapestry: Weakness Offers Attractive Entry Point

Tapestry Inc TPR shares are down 34 percent since mid-August versus 7 percent decline in the S&P 500. This has resulted in an attractive valuation, given the company’s momentum and visible catalysts, according to Wells Fargo.

The Analyst

Wells Fargo’s Ike Boruchow maintains an Outperform rating on Tapestry with an unchanged $58 price target.

The Thesis

The sell-off in Tapestry on economic factors, such as tariffs and exposure to China, appears excessive. Investors seem to be focusing on disruption possibilities due to a recent downtrend at Michael Kors KORS, which is Tapestry’s biggest competitor, with the largest share in the U.S. market, Boruchow said in a Wednesday the note.

While Michael Kors is witnessing weakness in its accessories category and insufficient inventory in its signature logo product, these headwinds are unlikely to carry over to Tapestry. In fact, Tapestry may “actually benefit from it,” Boruchow said. The struggles at Michael Kors represent an opportunity for Tapestry to gain market share.

The handbag/accessories market recorded high-single-digit growth in each of the last two quarters and Tapestry seems poised to benefit from this. The company is also likely to benefit from a potential comp inflection at its recently acquired KATE brand, with significant product and efficiency improvements.

Price Action

Shares of Tapestry were trading lower by 2.5 percent at $35.14 Thursday afternoon.

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Photo by Fashionmouse/Wikimedia.