2023-05-09 08:02:33 ET
Summary
- US real retail sales have sunk to nearly 2-year lows as inflation keeps running high and consumers' personal saving rate inches up.
- I see shares of PVH as undervalued, and strong guidance in last quarter's reports bodes well for the balance of the year.
- A single-digit P/E coupled with a stock trend that appears to be turning higher, I outline key price levels to watch.
US real retail sales have fallen to lows not seen in almost two years. Amid high inflation, but a still strong jobs market, there are mixed signals in today's consumer situation. As excess savings dwindle and a recession looms, it would not appear to be a great time to own retail equities.
But I see solid growth ahead and a low valuation on shares of PVH Corp. ( PVH ). With improving margins and a stock buyback plan, I see upside potential.
US Real Retail Sales Sagging
According to Bank of America Global Research, PVH is a global branded apparel vendor with two primary business groups: Calvin Klein and Tommy Hilfiger. It distributes its branded apparel through three main channels: wholesale, retail, and licensing operations.
The New York-based $5.2 billion market cap Apparel, Accessories, and Luxury Goods industry company within the Consumer Discretionary sector trades at a high 28.0 trailing 12-month GAAP price-to-earnings ratio and pays a small 0.2% dividend yield, according to The Wall Street Journal.
In its March earnings report , PVB reported robust margins while the company's management team guided FY2023 EPS to $10. Sequential margin improvement is also expected throughout this year along with a small buyback helping shareholders. Ahead of the upcoming earnings report, I would not be surprised to hear about a new share repurchase plan given the upbeat outlook and current program ending on June 3. Improved margins and robust profitability trends along with exposure to international markets are key catalysts. On the downside, a deterioration in macro conditions and unfavorable FX moves could hurt PVH.
On valuation , analysts at BofA see earnings rising at a strong pace through 2026. EPS is seen rising from near $9 this fiscal year to better than $13 by '26. The Bloomberg consensus forecast is not quite as sanguine, however. Dividends are expected to remain scant with this Discretionary stock, though PVH's free cash flow yield is forecast to be very strong by 2024. With single-digit operating and GAAP P/Es and the robust growth forecast, shares trade at attractive levels here. What's more, the EV/EBITDA ratio is solidly under the S&P 500's average.
PVH: Earnings, Valuation, Free Cash Flow Forecasts
If we apply PVH's 5-year average forward non-GAAP P/E of 11.7 and $9 of NTM EPS, then the stock should be near $105.
PVH: Forward Valuation Metrics Suggest Shares Are Inexpensive
Seeking Alpha
Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q1 2023 earnings date of Wednesday, May 31 AMC. The company's buyback program is slated to end in early June before its upcoming dividend ex-date.
Corporate Event Risk Calendar
The Technical Take
PVH has made a series of higher lows off the October bottom last year. Notice in the chart below that the stock's long-term 200-day moving average has also turned positively sloped - that is a good sign that the broad downtrend off the late 2021 high has turned. Still, stretch the chart back further, and you will see that PVH notched an all-time high near $170 in 2018, so there's plenty of bearish overhead supply.
For now, I see resistance in the low to mid-$90s with support at the March low just under $70 - that is also where the rising 200-day comes into play. I like how the stock gapped higher and held that gap on big volume in March, but it does open the door to a gap fill right above support. Buying in the mid-$70s with a stop under $67 would be a solid risk/reward play. A bullish breakout above $95 may lead to an eventual test of the 2021 peak.
PVH: Continues To Work Off The October Low, Mid-$90s Resistance
The Bottom Line
I have a buy rating on PVH. Its valuation is favorable considering the expected EPS growth while the technical situation has improved from the 2022 downtrend.
For further details see:
PVH Corp.: Improving Margins And Growth Outlook, Shares Undervalued