How Will Kate Spade (KATE) Stock Respond To This Coverage Initiation?

NEW YORK (TheStreet) --Kate Spade & Co. (KATE) had coverage initiated today by BMO Capital Markets with an "outperform" rating and a $48. price target.

"We view Kate as a brand destination with multiple avenues of growth and the right retail model to support it, including industry-leading omni-channel capabilities," the firm said in a note.

The shares closed down at $37.06 yesterday.

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Separately, TheStreet Ratings team rates KATE SPADE & CO as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate KATE SPADE & CO (KATE) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, premium valuation and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, KATE SPADE & CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 33.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for KATE SPADE & CO is rather high; currently it is at 55.31%. Regardless of KATE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KATE's net profit margin of 14.07% compares favorably to the industry average.
  • The debt-to-equity ratio is very high at 5.97 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, KATE maintains a poor quick ratio of 0.70, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: KATE Ratings Report

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