Assessing the Best Time to Invest

PVH New York Stock Exchange: PVH quality operations, cash flow and capital returns make the 25% discount to stock prices an opportune time to buy shares. The cause of the price implosion is the guidance, which was lower than analysts’ consensus estimates. However, as weak as the forecast is compared to consensus, there were rumors that the forecast would be light and cautious given the uncertain economic outlook for apparel manufacturers.

The company may have surprised the market with overly cautious guidance, but the result is the same. This company is well positioned to generate cash flow in 2024 and is poised for accelerated earnings growth as economic uncertainties evaporate. This could happen as early as mid-summer, when the FOMC is expected to cut or signal its first interest rate cut in years.

PVH Has Solid Quarter, Cautious Guidance, Increases Return on Capital

PVH Corp. is the parent company of Tommy Hilfiger and Calvin Klein, two of today’s most iconic brands. The company’s brand position and tilt at PVH+, including building brand strength, led to better-than-expected revenues in the fourth quarter. Fourth-quarter results include $2.49 billion in net revenue, which is flat compared to last year and 300 basis points better than expected.

Strength was driven by International, Direct-to-Consumer and Tommy Hilfiger, offset by weakness in Calvin Klein, North America and Wholesale channels. DTC, the company’s mainstay, grew 9%, with digital up 10% while wholesale fell 10%.

Falling wholesale prices are a headwind today and for 2024, but it’s a silver lining for investors. The decline is attributed to retailer caution and reduced inventory levels, exacerbated by PVH’s inventory management. Inventories are down 20% from last year, putting the company in a lean operating position, ready for the next consumer recovery. The shift to demand-driven inventory management helps the outlook because PVH should be able to increase production as demand improves and wholesalers return to growth.

Margin is another strong point of the relationship. The company’s strengths include pricing power, leading to better-than-expected gross and operating margins. The GAAP results include a 440 basis point improvement in gross margins and earnings, nearly double last year, while adjusted earnings increased 56% and beat the consensus reported by Marketbeat by 550 basis points.

The weak point is the guidance, which foresees a drop in revenues from -6% to -7% or from -3% to -4%, adjusted for the extra week in 2023 and the sale of historic brands. Earnings are expected to range from $10.75 to $11.00 compared to $12.50 expected prior to release. The result is that guidance is likely conservative and cash flow remains robust.

PVH Corp increases stock buybacks by $2 billion

PVH Corp.’s cash flow and balance sheet allow for robust share repurchases. The company repurchased $550 million worth of shares in 2023 to reduce the number of shares by 6%, increasing the authorization for 2024. Now that stock prices have corrected, the new authorization adds $2 billion dollars, or about a third of the market capitalization.

Analyst support for the stock has remained firm since release. Several companies have reiterated Outperform or equivalent ratings, even as price targets are declining. The good news is that revisions are pushing the upper end of the range down and are well above consensus so far.

The new lower target is $138 from Wells Fargo & Company, which is $19 or 16% above consensus, and the consensus implies a 12% upside. The chatter suggests that macroeconomics are influencing results now, but margins are healthy and efforts to improve the quality of the business are driving leverage. It may take some time for the PVH market to regain ground, but an uptrend is expected and recent highs should be retested.

PVH stock price drops to a critical support level

Price action in PVH has fallen significantly, over 20%, and could fall further. However, the market price has moved into a congestion range that could provide support given the buyback and stock price outlook. If not, this market could drop another $15 to the $90 region before finding solid support. Assuming the market takes advantage of the opportunity today, the stock price should start to bottom at or near the current level.

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