Stock of the Week: Fossil Group (FOSL)

Fossil Group (FOSL) designs, markets, and distributes fashion accessories. They license brands from high-end designers like Michael Kors (KORS), DKNY, Armani Exchange, and Marc Jacobs. FOSL recently introduced a line of watches from Tory Burch. Fossil has a particular emphasis on designer watches and jewelry that it sells through department stores, specialty shops, wholesalers as well as its own online store and catelogues.

FOSL has a bullish Chaikin Power Gauge stock rating and since it issued a very strong 3rd earnings report on November 11th, Fossil has been outperforming the market. FOSL has bested Wall Street estimates for 8 quarters in a row on both the top and the bottom line. In their recent earnings report, they came in with earnings per share of $1.96 vs. estimates of $1.82. Consensus earnings estimates are $7.25 for 2014 and $8.15 for 2015.

Fossil Group had been underperforming the market before its November earnings release because of slowing North American sales growth, foreign exchange currency risk in its international business and an important licensing agreement coming up for renewal next year with Michael Kors.

The short sellers had built up a large short position in FOSL and were clearly surprised by the strength in 3rd quarter earnings and revenue gains. The stock gapped up over 10% to a high of 115.20, aided by the announcement of an early extension of the Michael Kors licensing agreement through 2024 and a $1 billion buyback program.

Wall Street analysts are still divided on the stock, with Piper Jaffrey lowering its estimates for 2014/2015 after the November 11th earnings report, while Jeffries analyst Randal Konik raised his earnings estimates and increased his price target to $150 from $140. There is also some concern about the impact that the iWatch from Apple (AAPL) will have on FOSL’s high-end business.

These conflicting opinions have created an attractive buying opportunity for investors as Fossil, which pulled back to $107, is now bouncing off that oversold level and is starting to benefit from the demand for high-end retailers. With a strong balance sheet and improving price/volume activity, FOSL is an excellent buy candidate in the strong retail sector.

Fossil Group has a bullish Chaikin Power gauge stock rating based on strong Financial Metrics, positive Earnings Performance and improving Technicals. The large short position represents potential demand for FOSL’s shares as shorts will be pressured to cover in their quest for better performance into year-end. If FOSL makes a new high above $115.20, buying by shorts could push the stock to $125.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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