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Updated 4:05 P.M. E.T. Jan. 6
Wall Street can give that impression that it’s all about numbers — margin multiples, revenue growth, PE ratios and all the other metrics that add up to a stock price.
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But that’s only half of it.
The other half is how investors feel about all those numbers.
For Michael Kors-parent Capri Holdings — which struggled as it waited at the altar for the Tapestry Inc. buyout and then saw its stock price collapse along with the deal — sentiment has ranged from bad to very bad.
That might now be starting to change.
Shares of Capri increased 7.9 percent to $21.88 on Monday after BMO analyst Simeon Siegel upgraded the stock to outperform with a target price of $31. That gave the company a market capitalization of $2.6 billion.
An outperform rating means that an analyst thinks a company is stronger than the market is giving it credit for. And Siegel said the Capri bears have gone too far and are too “negative” or “uninterested” on the stock, which has fallen about 60 percent over the past years while the S&P 500 rose 24.7 percent.
While upgrades are most often based on some sign of better performance at the company, Siegel’s is based more on vibes and the underappreciated base Capri is working from as it builds back from a tough stretch as it waited for the deal with Tapestry, at $57 a share.
“Capri deserves management and investor focus,” Siegel said. “It’s regained the former; the latter should follow.”
Since the buyout was dropped, John Idol, chief executive of Capri, has been busy.
In November, he laid out plans to rev up the company’s three brands — Michael Kors, Versace and Jimmy Choo — and then stepped in to personally take the reins of Michael Kors as CEO of the brand.
And last month, WWD reported that Versace and Jimmy Choo have been put up for sale in a process managed by Barclays.
Even though the turnaround at Michael Kors, the company’s largest brand, will take time, Siegel said Capri has multiple ways to start turning sentiment and its stock price around.
“While we don’t see clear signs of strength/inflection — yet — we see potential upside as sales, margins and debt pressures turn ‘less-bad,’” Siegel wrote in his research note.
Capri’s revenues fell 16.4 percent to $1.1 billion in its fiscal second quarter.
But that’s a decline with some peculiarities.
“Unlike most large brand oversaturation issues — something Michael Kors knows well — Capri’s recent revenue drop appears more a function of distraction/lack of effort post-transaction announcement than of an overstretched logo,” Siegel said. “To wit, inventory is [down by a percentage in the double digits]; typically, overstretched brands first need to address inventory gluts. Metaphorically — maybe literally too? — turning the lights back on should prove a powerful opportunity.”