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Monness, Crespi, Hardt & Co. Upgrades Carter’s to a ‘Buy’

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Price movement

Carter’s (CRI) has a market cap of $5.0 billion. Its stock rose by 0.51% to close at $101.23 per share on August 8, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 0.34%, -6.4%, and 14.5%, respectively, on the same day. CRI is trading 4.5% below its 20-day moving average, 3.4% below its 50-day moving average, and 4.0% above its 200-day moving average.

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Related ETF and peers

The Vanguard Small-Cap ETF (VB) invests 0.18% of its holdings in Carter’s. The ETF tracks the CRSP US Small Cap Index. The market cap–weighted index includes the bottom 2%–15% of the investable universe. The YTD price movement of VB was 10.8% on August 8.

The market caps of Carter’s competitors are as follows:

  • Target (TGT): $44.9 billion
  • The Gap (GPS): $9.8 billion
  • Kohl’s (KSS): $7.2 billion

Carter’s rating

Monness, Crespi, Hardt & Co. has upgraded Carter’s rating to a “buy” from “neutral” and set the stock’s target price at $118.0 per share.

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Carter’s performance in fiscal 2Q16

Carter’s reported fiscal 2Q16 net sales of $639.5 million, a rise of 4.4% over net sales of $612.8 million in fiscal 2Q15. The company’s gross profit margin and operating income rose by 2.9% and 1.9%, respectively, between fiscal 2Q15 and fiscal 2Q16.

Its net income and EPS (earnings per share) rose to $36.2 million and $0.71, respectively, in fiscal 2Q16, compared with $36.1 million and $0.68, respectively, in fiscal 2Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS of $81.3 million and $0.72, respectively, which represented falls of 1.8% and 1.4% from fiscal 2Q15.

Carter’s cash and cash equivalents fell by 46.2%, and its finished goods inventories rose by 25.0% between fiscal 4Q15 and fiscal 2Q16. Its current ratio fell to 3.8x, and its debt-to-equity ratio rose to 1.5x in fiscal 2Q16, compared with 4.3x and 1.3x, respectively, in fiscal 4Q15.

Projections

The company has made the following projections for fiscal 3Q16:

  • net sales growth: ~6%–7%
  • adjusted EPS growth: ~6%–10%

The company has made the following projections for fiscal 2016:

  • net sales growth: ~5%–6%
  • adjusted EPS growth: ~10%

In the next part of this series, we’ll take a look at Reynolds American.

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