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PVH Gaining Momentum on Multiple Tailwinds: Should You Hold?


PVH Corp. PVH has been gaining from solid momentum at premium Calvin Klein and Tommy Hilfiger brands. Moreover, a superb surprise history, efforts to keep up with the changing retail trends and financial strength are notable growth drivers for the stock. However, persistent currency headwinds and volatile global environment remain impediments.

Shares of PVH have rallied 20.2% in the past six months, outperforming the industry’s gain of 12.4%. Let’s analyze the pros and cons of this Zacks Rank #3 (Hold) stock.

Brand Strength – Key Growth Driver

PVH maintains a diversified brand portfolio which allows it to generate above-average industry growth and sustain its position in the current challenging environment as well. Additionally, the company’s efficient brand management facilitates each of its brands to develop further through efficient marketing strategies, financial control and operating leverage. We believe PVH is well poised for long-term growth backed by continued strength at many of its brands, particularly Tommy Hilfiger and Calvin Klein, coupled with opportunities with regard to distribution.

Splendid Surprise History & Upbeat Outlook

PVH boasts a spectacular positive earnings surprise record for 14 consecutive quarters along with five straight quarters of sales beat. This robust surprise trend is mainly backed by significant momentum at the company’s premium Calvin Klein and Tommy Hilfiger brands, particularly in the international regions.

Going forward, PVH expects to deliver robust revenues and earnings in fourth-quarter 2017. The company anticipates revenues to increase 7% year over year while currency neutral revenues are anticipated to grow 6%. Also, management envisions fiscal 2017 adjusted earnings per share in the range of $7.78-$7.80 compared with $7.60-$7.70 projected earlier.

Furthermore, the company is likely to gain from a strong holiday season and an additional $20 million increase in marketing expenditures in the fourth quarter.

Catching Up With the Evolving Retail Trends

PVH has been striving to keep pace with the evolving retail trends and integrate consumers’ changing preferences into its operating decisions. This has gone a long way in bolstering the company’s quarterly performance, amid a challenging retail landscape. Some recent growth endeavors like the latest agreement with Li & Fung is also likely to enhance the former’s supply-chain network. Moreover, the company has inked a deal to acquire True&Co, a direct-to-consumer intimate apparel online retailer. This deal underscores PVH’s focus on making innovations and developing omni-channel operations to enrich consumer experience.

That said, we believe PVH is moving in the right direction and these strategies will help it to exploit opportunities in the lifestyle apparel market.

Bottom Line

PVH seems to be favorably positioned in the industry. However, its significant international presence exposes the company to foreign currency risks. Though we note that currency rates are likely to improve in the fourth quarter, it will still bear an impact of about 17 cents per share in fiscal 2017 earnings. Also, volatile macroeconomic and geopolitical environment remain potent threats.

Do Textile-Apparel Stocks Grab Your Attention? Check These

Interested investors may consider G-III Apparel Group LTD. GIII, Crocs Inc. CROX and Lululemon Athletica Inc. LULU, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel delivered an average positive earnings surprise of 6% in the trailing four quarters. It has a long-term earnings growth rate of 15%.

Crocs pulled off an average positive earnings surprise of 108.9% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 15%.

Lululemon Athletica delivered an average positive earnings surprise of 8.1% in the trailing four quarters. It has a long-term earnings growth rate of 12.9%.

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