Tapestry stock target raised to $90 by TD Cowen, holds rating

On Friday, TD Cowen maintained a Hold rating on Tapestry Inc. (NYSE: NYSE:TPR) while significantly raising the price target from $52.00 to $90.00. The adjustment followed Tapestry’s strong second-quarter results, which outperformed market expectations. The company reported earnings per share (EPS) of $2.00, surpassing the Street’s forecast of $1.75. This success was largely attributed to a robust performance by the Coach brand, which saw a 10% increase in constant currency, amounting to an 18% acceleration on a two-year basis. According to InvestingPro data, the stock has delivered an impressive 130% return over the past six months, with current trading levels showing the stock is near its 52-week high of $87.87.

The analyst from TD Cowen, Oliver Chen, highlighted the operational efficiency and disciplined execution of Tapestry, which also emphasized shareholder returns through share repurchases. The stock’s popularity among investors is tied to Coach’s exceptional performance in comparison to other apparel and accessory brands, both in terms of top-line growth and margins. InvestingPro analysis reveals impressive gross profit margins of 74.8% and strong financial health metrics, with the company maintaining dividend payments for 17 consecutive years. InvestingPro subscribers have access to over 15 additional key insights about Tapestry’s financial performance and outlook.

The revised price target of $90 is based on 17 times next year’s EPS estimates by TD Cowen. It was noted that Tapestry’s stock is currently trading at a significant premium to its historical average of 13 times over a 10-year period. This premium is largely due to the effective execution at Coach, including gross margin expansion and sales acceleration. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its intrinsic value, with current P/E ratio at 23x and Price/Book at 12.4x. A comprehensive Pro Research Report analyzing Tapestry’s valuation metrics and growth potential is available to InvestingPro subscribers.

Chen’s new estimates take into account the benefits from the accelerated share repurchase program, higher growth expectations for Coach, and projections for gross margin expansion in the second half of the year. Despite moving to the sidelines initially due to expectations of more muted growth for the Coach brand, the analyst acknowledged that if the brand’s momentum continues at the high single-digit percentage level, there could be further upside for the stock. The company’s strong financial position is evidenced by its current ratio of 1.58, indicating liquid assets exceed short-term obligations, while maintaining a moderate debt level.

The report also mentioned that Coach’s comparisons are expected to become more favorable, with flat growth transitioning to an estimated 6% growth in the third and fourth quarters. While Kate Spade was recognized as a known issue, representing only 20% of the total, there is interest in seeing how new management will innovate and revisit the core principles of the brand.

In other recent news, Tapestry Inc. has been the subject of multiple analyst revisions. Telsey Advisory Group raised its price target for the company to $92, maintaining an Outperform rating. The firm highlighted Tapestry’s strong performance, robust gross margin expansion, and successful second quarter. Similarly, Citi increased its price target for Tapestry to $85, reiterating a Buy rating. The adjustment came with expectations for the company’s second-quarter sales and earnings per share (EPS) to outperform the consensus.

On the other hand, CFRA downgraded Tapestry’s stock rating from Hold to Sell, despite increasing the price target to $56. The analyst expressed skepticism regarding the company’s ability to significantly expand margins and anticipates a period of underperformance ahead. Meanwhile, Barclays (LON:BARC) upgraded Tapestry’s stock rating from Equalweight to Overweight and increased the price target to $87. The analysts highlighted Tapestry’s advantageous position in the global handbag market, suggesting the brand is well-placed to gain market share across various consumer segments.

In addition, Tapestry and Estee Lauder (NYSE:EL) shares climbed following strong quarterly results from Swiss luxury group Richemont (SIX:CFR). The positive news from Richemont, a bellwether in the luxury goods industry, suggests a favorable environment for related companies such as Tapestry. These are the recent developments concerning Tapestry Inc.

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