Snapshot of the series
New York-based Kate Spade (KATE) reported its 3Q16 (ending October 1, 2016) earnings on Wednesday, November 2, 2016. The company’s top line and bottom line cruised ahead of the Wall Street estimates, with revenue growing 15% YoY (year-over-year) to $316 billion—around $5.5 million more than expectations.
EPS (earnings per share) rose a whopping 117% to $0.13. Analysts, on average, were expecting EPS of $0.08 for the quarter.
Despite these earnings and revenue beat, Kate’s stock price plunged more than 10% post the earnings release as Chief Executive Officer Craig Levitt warned about rising pricing pressures and margin contraction going forward.
About Kate Spade
Kate Spade primarily operates under two lifestyle brands, Kate Spade New York and Jack Spade. Jack Spade offers fashion products for men, while Kate Spade New York sells apparel and accessories for women and children as well as home products. The company also owns Adelington Design Group, a private brand jewelry design, and development group.
ETF investors looking to add exposure to Kate can consider the iShares Morningstar Small-Cap Growth ETF (JKK), which invests 0.42% of its portfolio in the company.
Valuations update and stock recommendation
Kate is currently valued at a one-year forward price-to-earnings ratio of 17.3x. It is trading at a premium to peers Michael Kors (KORS) and Coach (COH), which were valued at 10.7x, and 16.2x, respectively, as of November 2, 2016.
The mean 12-month price target by the 19 analysts covering Kate is $20.64, which suggests that the stock could gain ~41% over the next one-year period. Notably, 14 of the 19 analysts have recommended a “buy” on the stock, and five have recommended a “hold.” None of the analysts has issued a “sell” recommendation on Kate.