The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- The
stock gained last week after the news that it is in talks with Israel's Delta Galil Industries to sell its Jeanswear Division for an estimated $350 million to $400 million.
The market responded favorably, with the stock gaining as much as 11% on the day of the announcement. Jones Apparel competes with brands like
as well as department store mainstays such as
Polo Ralph Lauren
and store-owned private labels.
We discussed this favorable response in an
The increase in investor's confidence was based primarily on the impression that Jones is trying to focus entirely on the luxury segment while moving away from the value-based business such as jeanswear. Jeanswear is the lowest distribution channel of Jones carrying an EBITDA margin in the range of 9% to 10%.
Overall we're positive on the stock as we believe by shifting its focus on luxury brands, Jones will be able to counter the margin headwinds more effectively since luxury brands are more resilient to cost pressures than value-based brands.
Our price estimate for Jones Group stands at $15.64
, implying an upside of nearly 50% to the market price.
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