Tapestry shares target increased, outperform rating on buyback plan

On Friday, Baird maintained its Outperform rating on shares of Tapestry Inc. (NYSE: NYSE:TPR) and increased the price target to $64.00 from $58.00. This adjustment follows the official announcement that the company has terminated a potential deal and revealed additional information about its plans for stock repurchases.

Tapestry has expanded its buyback authorization to $2.8 billion and has reiterated its near-term focus on achieving sustainable revenue growth for its Kate Spade brand before pursuing any new deals.

The analyst from Baird highlighted that the termination of the deal and the buyback strategy reinforce their positive stance on the company. The firm has adjusted its earnings per share (EPS) estimates upwards to factor in some of the buybacks, although the timing and magnitude remain uncertain.

According to the analyst's statement, Tapestry's stock has already seen significant growth over the past month, outperforming the S&P 500 with a 27% increase compared to the broader market's 2%.

Tapestry's commitment to its near-term priorities and the increased buyback authorization are seen as positive drivers for the stock. The analyst's comments suggest that despite the recent rise in share price, there is potential for further gains through consistent execution of the company's stand-alone strategy.

The fashion company's strategic decisions, including the no-deal outcome and its focus on stock repurchases, appear to be aligned with Baird's expectations for an upward bias in EPS estimates. This alignment has prompted the firm to raise its price target for Tapestry, signaling confidence in the company's financial prospects.

Investors and market watchers will likely keep a close eye on Tapestry's performance, as the company continues to navigate its growth strategy without pursuing additional deals for the time being. The enhanced buyback program and the focus on internal brand growth are key factors that could influence the company's stock trajectory moving forward.

In other recent news, Tapestry Inc. has seen significant adjustments in its financial outlook following robust first-quarter results that exceeded expectations. Telsey Advisory Group raised Tapestry's price target to $67, maintaining an Outperform rating on the stock. The firm's analysts highlighted the potential for earnings growth due to Tapestry's new share buyback authorization and decision to focus on enhancing its Kate brand's performance.

Despite a challenging global economic climate, Tapestry's Coach brand demonstrated resilience with a 2% increase in constant currency in the last quarter. In contrast, the Stuart Weitzman brand saw an unexpected sales increase, while Kate Spade experienced a sales dip. Tapestry also updated its fiscal year 2025 guidance, surpassing previous consensus estimates.

The company reported a 27% increase in total revenue in Europe and a 5% decrease in Greater China. However, Tapestry remains optimistic about its future, aiming for a full-year revenue growth of 1-2% and expecting to expand its gross margin by over 50 basis points by fiscal 2025. These developments follow the termination of a merger agreement and the company's decision to contest an injunction blocking the acquisition of Capri Holdings (NYSE:CPRI).

InvestingPro Insights

Tapestry's recent strategic decisions align well with its current market performance and financial health, as reflected in the latest InvestingPro data. The company's market cap stands at $13.47 billion, with a P/E ratio of 16.44, indicating a reasonable valuation relative to its earnings. This is particularly noteworthy given Tapestry's impressive 93.88% price total return over the past year, significantly outperforming the broader market.

Two key InvestingPro Tips support Baird's optimistic outlook: Tapestry "has raised its dividend for 4 consecutive years" and "operates with a moderate level of debt." These factors suggest financial stability and a commitment to shareholder returns, which are crucial for sustaining the company's buyback program and growth initiatives.

The company's focus on sustainable revenue growth for Kate Spade is reflected in its strong financials. Tapestry boasts a gross profit margin of 73.91% for the last twelve months, underscoring its "impressive gross profit margins" as highlighted by InvestingPro Tips. This robust profitability provides the company with the financial flexibility to pursue its expanded $2.8 billion buyback authorization.

Investors seeking more comprehensive insights can access 15 additional InvestingPro Tips for Tapestry, offering a deeper understanding of the company's financial health and market position.

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