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Citigroup Upgrades Carter’s to a ‘Buy’

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Price movement

Carter’s (CRI) fell 3.3% to close at $87.48 per share during the third week of December 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -3.3%, -4.9%, and -0.40%, respectively, as of December 23.

CRI is trading 5.1% below its 20-day moving average, 2.3% below its 50-day moving average, and 10.4% below 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 YTD price movement of VB was 18.8% on December 23.

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

  • Target (TGT): $41.4 billion
  • Gap (GPS): $9.6 billion
  • Kohl’s (KSS): $9.6 billion

CRI’s rating

On December 19, 2016, Citigroup upgraded Carter’s rating to a “buy” from “neutral.”

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Performance of Carter’s in fiscal 3Q16

Carter’s reported fiscal 3Q16 net sales of $901.4 million, a rise of 6.1% over $849.8 million in fiscal 3Q15. The company’s gross profit margin expanded 80 basis points, and its operating margin narrowed 80 basis points between fiscal 3Q15 and fiscal 3Q16.

Its net income and EPS (earnings per share) rose to $80.8 million and $1.60, respectively, in fiscal 3Q16 compared to $79.3 million and $1.51, respectively, in fiscal 3Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS of $148.9 million and $1.61, respectively, in fiscal 3Q16, a rise of 2.3% and 5.9%, respectively, over fiscal 3Q15.

Carter’s cash and cash equivalents fell 63.1%, and its finished goods inventories rose 17.6% between fiscal 4Q15 and fiscal 3Q16.

Projections

Carter’s has made the following projections for fiscal 4Q16:

  • net sales growth of ~5.0%–6.0%
  • adjusted EPS of $1.65–$1.70

The company has made the following projections for fiscal 2016:

  • net sales growth of ~5.0%–6.0%
  • adjusted EPS growth of ~9.0%–10.0%

Next, let’s look at Drew Industries (DW).

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