Upgrade / Downgrade Pulse: U.S. / Canada Apparel Firms

by: Alacra Pulse Check Blog

By Sheena Lee

It’s been a mixed bag for U.S. and Canadian apparel companies over the last 30 days, with upgrades equalling downgrades by sell-side and independent analysts tracked by Alacra Pulse.

Goldman Sachs seems to like integrated apparel manufacturer/retailers. Abercrombie & Fitch (NYSE:ANF) was upgraded by Goldman to Conviction Buy from Buy as better economic conditions may lift buying power of young customers. Goldman also raised American Eagle Outfitter’s (NYSE:AEO) rating to Buy from Neutral. “After 3.5 years where edgier trends like dresses and skinny jeans hurt Abercrombie & Fitch and American Eagle, we see early signs that the cycle may move back in their favor,” said Goldman analyst Michelle Tan.

Polo Ralph Lauren (NYSE:RL) was moved onto the Conviction Buy list at Goldman Sachs; Needham & Co. analysts also reiterated their Buy rating and $123 price target on Polo. “RL represents a quality luxury goods manufacturer and retailer trading at an affordable multiple. Long term growth will be fueled by successfully integrating recent Japanese and Southeast Asian acquisitions. We believe RL is well-positioned for Holiday as the luxury consumer has increased their spending,” said Needham analysts.

Yoga apparel maker Lululemon Athletica (NASDAQ:LULU) was lifted to Hold from Underperform by Jefferies (JEF) with a significant price target increase to $65 from $40. Jefferies said that brand discovery by consumers is rising faster than it expected. FBR Capital Markets (FBCM) maintains a Market Perform on the Canadian firm and hiked its price target to $63 from $45. “Lululemon Athletica delivered a phenomenal quarter … This quarter was an important test because the company was running up against positive double-digit compares. It passed the test with flying colors …”

However, New York headquartered Aeropostale (NYSE:ARO) was downgraded to Sell from Neutral and Goldman’s price target on the stock was revised down to $23 from $25. RBC Capital also lowered its price target on shares of the retailer to $34 from $38. RBC analysts currently have a Top Pick rating on the stock.

True Religion (NASDAQ:TRLG) was downgraded to Above Average from Buy by Caris & Co. However, Needham & Company reiterated a Buy on the denim and apparel retailer, even after slashing its price target to $23 from $31. ”TRLG is well-positioned for continued growth in international wholesale and retail, which is far from reaching saturation in the U.S. market with only 81 stores. The retail channel is driving sales growth, has higher margins, enables TRLG to better control pricing and is now 49.9% of sales vs. 39.6% LY. Long term, we expect TRLG to become more of a retailer than a wholesaler,” said Needham analysts.

Citi (NYSE:C) initiated Gap (NYSE:GPS) at Sell with a $20 price target, and Morgan Stanley (NYSE:MS) starts Gap at Equalweight with a $21 price target.

Among other apparel companies:

Wall Street Strategies downgraded Liz Claiborne (LIZ) to Sell, but its price target was raised at Credit Suisse by a dollar to $7. “Turnaround on track but problem with inventory build,” said Credit Suisse analysts, who maintain a Neutral rating on the firm.

DA Davidson lowered Columbia Sportswear (NASDAQ:COLM) to Neutral from Buy and also pushed down the company’s price target to $55 from $70. FBR Capital reiterated a Market Perform rating on the outdoor apparel firm and raised price target to $52 from $50. An FBR analyst said, “With premium price points (high end jackets at $1,200, footwear at $450 and gloves at $400), the Thermal Electric line represents the 'best' in the company’s tiered 'good, better, best' strategy (reflective being the better, core being good) … Visible top line, more profitable mix versus investments, product cost inflation.”

Guess (NYSE:GES) was downgraded by Wedbush Securities to Neutral from Outperform, saying, “… Recommend investors take profits following recent appreciation and the stock reaching within 9% of our price target. While we are expecting a solid Q3, with increased volatility in North America retail business (44% of sales) limiting our ability to raise forward estimates at this juncture despite strength in Asia and Europe (favorable FX), we believe shares are now fairly valued.” Citigroup initiated coverage of Guess with a Hold rating and a price target of $50.

Analysts raised their rating and price targets on Phillips-Van Heusen (NYSE:PVH), owner of Calvin Klein and Tommy Hilfiger brands. TheStreet pushed the retailer up to Buy from Hold, while Deutsche Bank raised its target to $62 from $57. Brean Murray boosted share estimate to $85 from $80. Goldman Sachs also maintained its Buy rating and $85 price target.

Nike (NYSE:NKE) was upgraded to Buy from Neutral at UBS, and its price target was raised from $84 to $100 this month.

(Source: StreetInsider, Smart Trend, American Banking News, Dividend.com, Bloomberg Businessweek, Minyanville.)