On Friday, Telsey Advisory Group adjusted its outlook on Tapestry Inc. (NYSE: NYSE:TPR), increasing the price target to $67 from $58 while retaining an Outperform rating on the stock. The revision follows the recent termination of a merger agreement that had been under scrutiny due to a preliminary injunction issued last month.
The analyst from Telsey noted the potential for significant earnings growth stemming from Tapestry's new share buyback authorization, which underscores the robustness of the company's financial position. The decision by Tapestry to avoid near-term acquisitions as it focuses on enhancing the performance of its Kate brand was also seen as a positive move by the analyst.
Despite the challenging global economic climate, the Coach brand, part of Tapestry's portfolio, has demonstrated relative resilience, posting a 2% increase in constant currency in the last quarter. This strength supports the analyst's continued confidence in Tapestry's performance.
The new price target of $67 is based on a 13.7x multiple applied to the two-year forward earnings per share (EPS) estimate of $4.87. This valuation represents an increase from the historical ten-year next twelve months (NTM) multiple of 13.1x. The analyst's commentary suggests optimism in Tapestry's strategic direction and financial health, leading to the upgraded price target.
In other recent news, Tapestry Inc. reported first-quarter results that exceeded expectations, leading the company to raise its full-year revenue and earnings guidance. Telsey Advisory Group adjusted its outlook for Tapestry, raising the price target to $58 from $54 and reaffirming an Outperform rating on the stock.
The company's robust performance was highlighted, with strong sales growth and gross margin expansion offsetting higher marketing expenses. Tapestry's Coach brand showed consistent growth, while Stuart Weitzman had an unexpected sales increase. However, Kate Spade experienced a sales dip despite contributing to enhanced profitability.
Tapestry has updated its fiscal year 2025 (FY25) guidance, surpassing previous consensus estimates. The company also contested the injunction blocking the acquisition of Capri Holdings (NYSE:CPRI), a move that Telsey suggests could benefit Tapestry by streamlining its business model and potentially resuming share buybacks.
Tapestry reported a 27% increase in total revenue in Europe and a 5% decrease in Greater China. Despite these mixed results, the company is 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.
InvestingPro Insights
Tapestry Inc.'s recent performance and strategic decisions align with several positive indicators highlighted by InvestingPro. The company's impressive gross profit margins, as noted in one of the InvestingPro Tips, support the analyst's confidence in Tapestry's financial robustness. This is further evidenced by the company's gross profit margin of 73.91% for the last twelve months as of Q1 2025, according to InvestingPro Data.
The analyst's optimism about Tapestry's earnings growth potential is reflected in the InvestingPro Tip that 9 analysts have revised their earnings upwards for the upcoming period. Additionally, the company's strong return over the last month and three months, as mentioned in the InvestingPro Tips, aligns with the positive outlook expressed in the article.
Tapestry's decision to focus on enhancing the performance of its Kate brand rather than pursuing near-term acquisitions is particularly noteworthy when considering the InvestingPro Tip that the company operates with a moderate level of debt. This strategic move could potentially strengthen its financial position further.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for Tapestry Inc., providing a deeper insight into the company's financial health and market position.
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