COLM - Columbia Sportswear: An Elevated Valuation Aided By A Foreign Rebound Eyeing Q4 Earnings

Summary

• Retail stocks have seen a big comeback in 2023, driven higher in part by recovering global growth forecasts.
• With Q4 earnings on tap and after a big rally, Columbia Sportswear features a premium valuation with limited EPS upside and a small yield.
• While the valuation is not enticing, the chart offers traders opportunity from the long side.

Foreign GDP growth forecasts are on the rise. The sanguine trend over recent weeks has helped lift many consumer names that have significant foreign sales exposure.

One company reports Q4 results on Groundhog Day, and after some recent profit warnings in the industry, investors may be on edge. But is Columbia Sportswear (COLM) a value here? Let’s weigh the risks and potential upside from both a fundamental and technical perspective.

GDP Forecasts On The Mend

According to Bank of America Global Research, Columbia Sportswear Company designs, sources, markets, and distributes outdoor products under the Columbia Sportswear, Sorel, Mountain Hardwear, and prAna brand names. Its product categories include outerwear, sportswear, footwear, accessories, and equipment.

The Oregon-based $5.8 billion market cap Textiles, Apparel & Luxury Goods industry company within the Consumer Discretionary sector trades at a near-market 18.0 trailing 12-month GAAP price-to-earnings ratio and pays a small 1.3% dividend yield, according to The Wall Street Journal .

A warm winter may have dinged sales and profits for Columbia while labor costs continue to be a headwind. The good news is better than expected international GDP estimates should help the firm with its non-US segments. Moreover, China's re-opening is a bullish factor.

On valuation , analysts at BofA see earnings climbing by a solid 8% rate in 2023 after dipping last year. Per-share profits are then seen as rising at a more moderate clip in 2024. The Bloomberg consensus forecast is more upbeat than what BofA projects. Dividends, meanwhile, are expected to rise over the coming quarters as free cash flow holds firm above 6%, slightly above the S&P 500’s FCF yield.

With improved earnings ahead, both COLM’s operating and GAAP P/Es should retreat to attractive levels in the low teens while the EV/EBITDA ratio is significantly below the SPX average of 12x. With somewhat tepid growth ahead, the forward PEG ratio according to Seeking Alpha is 1.64 on the stock, above its sector median. Overall, the valuation is not a tremendous buy here considering its 18.4 times forward earnings at latest check.

Columbia Sportswear: Earnings, Valuation, Free Cash Flow Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q4 2022 earnings date of Thursday, February 2 AMC with a conference call immediately after results hit the tape. You can listen live here . There are no other volatility catalysts on the calendar.

Corporate Event Risk Calendar

The Options Angle

Digging into the upcoming earnings report, data from Options Research & Technology Services (ORATS) show a consensus EPS forecast of $2.28 which would be a 4.6% decline from $2.39 of per-share profits reported in the same quarter a year ago. What is bullish here is that the company has a string of 8 straight earnings beats, but shares have a mixed performance history during that time. What’s more, after some big post-reporting moves in 2020 and early 2021, recent moves have been relatively tame.

As far as the expected move, the at-the-money straddle expiring soonest after the earnings date shows a 6.3% swing priced in. While that is lower versus the past two reports, I’m inclined to not buy that premium given soft price reactions since April 2021.

COLM: Muted Past Earnings Reaction, Options Not Cheap

The Technical Take

With a lukewarm valuation and somewhat pricey options, how does the chart look? I see some bullish features. Notice in the graph below that shares have climbed through what was a bearish rising wedge that was forming. The move came on strong volume with momentum RSI is in a bullish zone above 40. I see some possible bearish supply of shares, or resistance, in the $97 to $105 range as evidenced by the volume by price indicator on the left.

Still, there’s solid support in the $80 to $84 range and the 200-day moving average has ended its downward trend – indicative of a bearish to bullish reversal. I think shares could test the former intermediate-term highs near $105 to $107. Long here with a stop under $78 is a viable play, but the risk/reward is admittedly not amazing.

COLM: Bullish Breakout On Volume Negates Bearish Rising Wedge

The Bottom Line

With an elevated valuation and expensive options ahead of earnings, I think the play on COLM is a near-term swing long, but long-term investors should wait for better growth signs in the coming quarters from a fundamental perspective.

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