Michael Kors (KORS-Free Report) is back to a Zacks #1 Rank after another stellar earnings report this month. While other retailers are missing their comps, lowering guidance, and generally blaming the weather for everything, this global brand is hitting its growth stride.
In fact, since March of 2012 after the company's first quarterly report following their IPO in December 2011, KORS has consistently been a #1 Strong Buy or #2 Buy and we've seen the stock rise from the mid-$40's to $70.
This earnings momentum is built on high double-digit sales growth, global expansion in branded outlets and top high-end retailers, and a wide diversity of apparel and accessories for men and women that command must-have fashion sense. They also position many of their products at more affordable price points, what the company calls "accessible luxury."
The Zacks proprietary Price & Consensus chart below shows the rapid rise in analyst earnings estimates. While it may be tempting to think that this kind of growth must eventually level off (think AAPL), most analysts believe that this brand, and management's multi-channel strategy and superior execution, have a few more good years left in them.
I first discovered the company in January of 2012 when a friend told me to watch a video of how one of the company's industrial-strength printers could replicate a working adjustable wrench in a few hours just from scanning its dimensions with their proprietary technology.
But then I took a look at the Zacks Rank for DDD, which dropped to a #5 Strong Sell this month. Upon further investigation, I found that the company has hit some bumpy patches in their growth story that caused at least two analysts to lower earnings estimates. The analysts are concerned about acquisition costs, sales growth execution, and R&D spending.
Net income for the reported quarter was $9.3 million or 10 cents per share, compared with $8.3 million or 11 cents per share in the year-earlier quarter. Although the absolute earnings increased year over year, it declined on a per share basis due to higher number of shares outstanding for the reported quarter.
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July Existing Home Sales Up
With the recent improvement in economic conditions and the housing market in general, mortgage/interest rates are edging upwards to more normalized levels since May 2013. According to the Freddie Mac mortgage survey, the 30-year fixed mortgage rate has risen from 3.59% on May 23 to 4.40% as of Aug 15. In fact, mortgage interest rates are at the highest level in two years.
This has raised concerns among some analysts. High interest rates dilute the demand for new homes, as mortgage loans become expensive. This lowers a buyer’s purchasing power. Moreover, if the Federal Reserve scales back its current $85 billion bond buyback program and instead adopts a tighter monetary policy, as planned, interest rates could shoot up further. This in turn would lower revenues and profits of for homebuilders.
However, another group of analysts believe that interest rates are still below historical levels despite the recent hike and housing is still very much affordable. Home prices have also started rising with market demand gaining momentum but supply remaining limited (both of existing and new homes).
In fact, this group of analysts believes that rising home prices and thinning home inventories have created a sense of urgency among homebuyers to buy a house before prices or mortgage rates shoot up further.
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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