Citigroup upgrades Michael Kors to a “buy”
Michael Kors (KORS) stock has risen on October 3 after bullish input from Citigroup. The brokerage raised the handbag maker to a “buy” rating after having set it at a “neutral” for over two years.
Analyst Paul Lejuez cited strong quarterly earnings and the company’s recent Versace acquisition as the key reasons for the upgrade.
About the recent earnings beat
Michael Kors hasn’t missed Wall Street’s bottom line expectations for the past 13 consecutive quarters. It missed top line forecasts only once in the same period.
The company reported a stellar fiscal 2019 first quarter in August as its sales increased 26.3% YoY (year-over-year) to $1.20 billion. Wall Street, in comparison, had been expecting a 19.4% YoY jump. Revenue from the company’s namesake brand, Michael Kors, increased 8% YoY, while Jimmy Choo also exceeded analysts’ expectations driven by a solid performance from its footwear business. Its gross margin improved 230 basis points to 62.6% of its sales during the quarter.
About the Versace acquisition
Michael Kors announced a $2.12 billion deal to acquire European high-end luxury brand Versace on September 25. The acquisition is Kors’s second in the last one and a half years. It acquired premium shoemaker Jimmy Choo for $1.2 billion in July 2017.
Lejuez said that the Versace acquisition would provide an upside to Michael Kors’s sales and margins going forward. He added that while the acquisition “brings uncertainties” for KORS, the deal doesn’t look overpriced, as “Versace seems to be on the rise.”
Stock price movement
Michael Kors stock has jumped 2.3% to $67.62 as of 12:10 PM EDT on October 3. The stock has risen ~37% over the past year.