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Michael Kors (KORS) Surges 93% in 6 Months: More Room to Run?


Michael Kors Holdings Limited KORS has done exceedingly well and emerged as a strong contender to be an investment choice. This is quite evident from the stock’s surge of 92.6% in the past six months, outperforming the industry’s growth of 23.4%.

We believe there is still momentum left in this Zacks Rank #2 (Buy) stock, which is reflected from its long-term earnings growth rate of 7.5% and upward estimate revisions in the past 90 days. Stocks such as Columbia Sportswear Company COLM, Gildan Activewear Inc. GIL and V.F. Corporation VFC which belong to the same industry have witnessed a gain of 31.3%, 9% and 39.6% in the past six months, respectively. Let’s delve deeper and find out the reason that kept Michael Kors ahead of its peers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Turnaround Strategy

Michael Kors’ acquisition of Jimmy Choo will help diversify portfolio and tap international markets. The buyout is likely to be accretive in the low single digits in fiscal 2020. In order to drive top-line growth, Michael Kors has been focusing on store expansion. In fiscal 2016, the company opened 142 new stores, which included 47 in the Americas and 95 worldwide. In fiscal 2017, it opened 159 net new stores openings, which includes 111 outlets related to the acquisition of the earlier licensed operation in Greater China. Given the scope for high profitability from company-owned stores, management is putting more emphasis on opening retail outlets. Moreover, the company stated that it will continue with the expansion drive in Asia and also believes it has a $1 billion opportunity in the long term.

Michael Kors had earlier stated that its project Runway 2020 strategic plan, which focuses on product innovation, brand engagement and customer experience, has made rapid progress during the second quarter. As part of the company’s strategy of product innovation, it launched Bancroft in the Michael Kors collection line. The product innovation strategy aided the global Women's footwear comparable sales to increase by double digit. Moreover, e-commerce continues to post robust performance.

Valuation Perspective

A brief glance at some valuation metrics seems to indicate that Michael Kors has enough room to run in bourses.

Michael Kors looks attractive with respect to a forward price-to-earnings (P/E) multiple of 16.3x compared with industry’s 16.8x. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Michael Kors holds the edge here with an EV/EBITDA ratio of 9.4 lower than 16.6 for the industry.

Earnings Trend & Estimate Revisions

Michael Kors continued with positive earnings surprise streak for the 10th consecutive quarter, when it posted second-quarter fiscal 2018 results. Further, revenues came ahead of the estimate for the third straight quarter. The bottom line was driven by lower effective tax rate and strategic efforts taken by the company.

Let’s look at Michael Kors earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. In the past 90 days, the Zacks Consensus Estimate for fiscal 2018 has increased by 6.7% to $3.96. Further, earnings estimates have jumped by 6.3% to $4.06 per share for fiscal 2019.

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