Credit Suisse Sees Many Retailers and Brands Offering Big Upside Ahead

Retail

Published: March 13, 2018 10:55 am

Last Updated: January 12, 2020 2:28 am

When it comes to the world of softline retail and global brands, many disruptions have been seen in recent years. It’s not just the death star of Amazon either. Many consumers have turned to discount stores and waiting for retailers to start a sale before buying. The reality is that the world is not going to leave all retailers in the dust and not all global brands are at risk. At least that’s the take of a new Credit Suisse reinstatement of sector coverage.

Michael Binetti at Credit Suisse has taken a rather positive view of the softlines retail and global brands sector. Some of the drivers for the call were better near-term trends after the strongest holiday retail trends in several years were continuing into the first quarter. All in all, traffic was deemed to be “less bad” while inventory levels have been right-sized. On top of store closures, a better macroeconomic backdrop and tax reform are further adding support.

According to Binetti, stock selection still matters here. After all, the industry is still facing seismic long-term challenges.

Investors should consider that retailers are often cited as having had much higher corporate tax rates than those in other sectors. That puts it as a likely winner in tax reform. Also worth noting is that most traditional Buy and Outperform ratings come with upside of 8% to 10% at this stage in the bull market.

Credit Suisse’s top picks are PVH, Michael Kors, Burlington and Estee Lauder. The firm’s most “out of consensus calls” are in Ralph Lauren, Kors and Tiffany. Most of these have been outlined below, with trading history and consensus analyst target prices from Thomson Reuters.

Michael Kors Holdings Ltd. (NYSE: KORS) was reinstated in coverage with an Outperform rating and assigned a $75 price target (versus a $61.41 prior close). It has a consensus analyst target price of $71.80. The firm sees consensus estimates being too low here. The company also is considered to be in the middle innings of a familiar business turnaround.

Estee Lauder Companies Inc. (NYSE: EL) was started with an Outperform rating and assigned a target price of $162. Its prior close was $145.37 a share, and the consensus target price was $146.75. Estee Lauder has only a 1% dividend yield. The company’s powerful portfolio transformation boosts the firm’s conviction for upside.

Tiffany & Co. (NYSE: TIF) was started with an Outperform rating and assigned a target price of $120. Tiffany closed at $100.42, has a consensus analyst target of $111.48, and has nearly a 2% dividend yield. Despite recent sales lagging some expectations, the firm sees new investments and a solid valuation offering solid support.

Nike Inc. (NYSE: NKE) was reinstated with an Outperform rating and assigned a $78 target price. Shares previously closed at $66.82 and have a consensus target price of $67.47. Nike also has a 1.2% yield. Credit Suisse thinks that Nike’s revenue growth bottomed in the first quarter of fiscal 2018, and it sees several drivers reaccelerating revenues.

Burlington Stores Inc. (NYSE: BURL) was started with an Outperform rating and assigned a target price of $146 (versus a $125.54 close). The consensus analyst target price is $143.67. Burlington is considered the youngest of the off-price retailers and is underappreciated as a gross margin opportunity.

Lululemon Athletica Inc. (NASDAQ: LULU) was assigned an Outperform rating with a $96 target price. The stock previously closed at $80.33, and it has a 52-week range of $47.26 to $83.98 and a consensus target price of $83.56. The firm sees Lululemon as a rare example of a large brand that has been able to protect its price integrity by avoiding a reliance on recurring promotional sales and avoiding the outlet and off-price sales for additional growth.