It is the right time to add
Michael Kors Holdings Limited
) to your portfolio, if you haven't yet, as the stock is looking
much promising now and the underlying factors are capable of
carrying the momentum further. The stock holds a Zacks Rank #1
(Strong Buy) and has surged roughly 20% year-to-date
demonstrating its inherent strength and long-term earnings growth
projection of 25.4%. We believe the stock could prove to be a
solid bet for investors.
Michael Kors' primary strength is its earnings surprise
history. The company had outperformed the Zacks Consensus
Estimates in the past 9 quarters. Looking at its earnings
surprise history of the last four quarters, this global luxury
lifestyle brand has topped the Estimate by an average of 23.3%,
including a whooping earnings surprise of 29.1% in third-quarter
Shares of Michael Kors crafted a new 52-week high of $99.74 on
Feb 18, and have shot up approximately 29%, since posting solid
third-quarter results. The quarterly earnings came in at $1.11
per share, cruising ahead of the Zacks Consensus Estimate of 86
cents and surging 73.4% year over year. Revenue for the first
time surpassed the $1 billion mark at $1.01 billion, handily
beating the Zacks Consensus Estimate of $860 million and
escalating nearly 59% year over year.
A splendid performance prompted management to provide an
upbeat guidance. Management expects fourth-quarter revenue to be
$790 million to $800 million and earnings between 63 cents and 65
cents a share. For the full year, revenue is likely to be in the
range of $3.18 billion to $3.19 billion and earnings are
forecasted in the band of $3.07 to $3.09 per share.
Ever since Michael Kors posted better-than-expected results
and provided a solid guidance, the Zacks Consensus Estimate has
been trending upwards. The Zacks Consensus Estimates for fiscal
2014 and 2015 increased 10.2% and 9.8% to $3.12 and $3.82,
respectively, in the last 30 days.
Michael Kors is seeking to carve a niche in the high-end
retail sector by broadening its footprint in strategic markets
and offering merchandise that caters to the elite. In addition to
its watch and handbag collection, Michael Kors is now focusing on
enhancing apparel, footwear and other miscellaneous categories to
compete better with peers like
Ralph Lauren Corporation
Moreover, the company plans to invest additional capital in
its fourth quarter, which is expected to be diverted towards the
opening of 9 new retail stores as well as its ongoing
shop-in-shop conversions and investments to develop
infrastructure and systems.
Michael Kors currently trades at a forward P/E of 31.70x,
reflecting a substantial premium to the peer group average of
15.44x. Its price-to-book ratio of 12.41x is also significantly
higher than the peer group average of 4.56x. Given the company's
compelling fundamentals, the premium valuation is justified.
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