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On Friday, Evercore ISI maintained its Outperform rating on Tapestry Inc. (NYSE: NYSE:TPR) with a price target of $47.00. The firm's analysis is based on the company's solid financial metrics, including a high gross margin and potential for earnings growth.
Tapestry's stock is currently valued at a price-to-earnings (P/E) ratio of 8.5 times the fiscal year 2025 guidance, with earnings per share (EPS) expected to be between $4.45 and $4.50. Evercore ISI highlighted Tapestry's robust gross margins, which exceed 70% for its core brand, and noted that Coach contributes 94% of Tapestry's earnings before interest and taxes (EBIT). The company also boasts a 12% free cash flow yield and a 3.7% dividend yield on its standalone business, excluding Capri Holdings Limited (NYSE:CPRI).
The potential acquisition of Capri Holdings is seen as a significant factor influencing Tapestry's stock in the near term. However, the firm indicated that there are mixed signals regarding the likelihood of the deal's completion, as well as concerns over Capri's worsening trends. These factors contribute to the uncertainty surrounding the transaction and its terms.
Despite the challenges associated with the Capri deal, Evercore ISI remains optimistic about the long-term prospects of a combined Tapestry and Capri entity. The firm suggests that, even with near-term pressures, the merger could position the company to double its EPS within three to four years, a scenario that would be favorable for investors.
Investors and market watchers are keeping a close eye on the developments between Tapestry and Capri Holdings, understanding that the outcome of this deal could significantly impact Tapestry's stock performance and future growth trajectory.
In other recent news, Tapestry Inc., known for its Coach brand, reported fourth-quarter results that surpassed analysts' expectations. The success was driven by strong demand for its Coach Tabby handbags, particularly among younger consumers. Tapestry's adjusted earnings per share reached 92 cents, and net sales hit $1.59 billion, both figures exceeding estimates.
In contrast, Capri, the parent company of Michael Kors and a potential acquisition target for Tapestry, reported a 12% decline in first-quarter revenue. Despite this, Tapestry remains optimistic about the acquisition and plans to close the deal this year.
Tapestry also provided an upbeat outlook for fiscal 2025, forecasting revenue of approximately $6.7 billion and earnings per share of $4.45 to $4.50. These developments come amidst a challenging time for the luxury sector, marked by signs of a slowdown in consumer spending. Despite these challenges, Tapestry's strategy of focusing on coveted items like the Tabby handbags has allowed it to outperform expectations.
InvestingPro Insights
As Evercore ISI maintains an optimistic outlook on Tapestry Inc. (NYSE: TPR), real-time data from InvestingPro aligns with some of the firm's positive sentiment. Tapestry's robust gross profit margins are notable, standing at an impressive 73.29% in the last twelve months as of Q4 2024. This figure supports Evercore ISI's emphasis on the company's strong financial metrics. Additionally, the company's commitment to shareholder returns is evident as it has raised its dividend for 3 consecutive years, with a notable dividend yield of 3.57% and a 16.67% dividend growth in the same period.
Despite some concerns over near-term earnings, with 3 analysts having revised their earnings downwards for the upcoming period, Tapestry's market fundamentals remain solid. The company boasts a market capitalization of $9.01 billion and maintains a moderate P/E ratio of 10.85, suggesting a balanced valuation relative to its earnings. Furthermore, the company's liquid assets exceed its short-term obligations, providing financial flexibility.
For investors looking for more in-depth analysis, there are additional InvestingPro Tips available, which can offer further insights into Tapestry's stock performance and financial health. The comprehensive set of tips is accessible through InvestingPro's platform, which includes a total of 10 tips for Tapestry at the moment, providing a more detailed look into the company's investment potential.
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