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Stock Strategist

Is the Market Underestimating PVH?

We think now may be a good time for investors to try on this apparel manufacturing stock.

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 PVH (PVH) appears to be on the brink of a turnaround, but the market seems to have its doubts. Management guidance calling for over 15% adjusted earnings-per-share growth in the second half of 2014, following a 9% decline in the first half, does seem optimistic at first glance. However, we think numerous data points back up this forecast. With Tommy Hilfiger solidly on track, Heritage Brands facing what we think are only short-term headwinds, and Calvin Klein poised to finally begin realizing some returns on Warnaco investments in the back half of this year, we think now is an excellent time to consider buying.

We continue to think that the company's brand intangible assets yield more-stable demand and pricing power, compared with many competitors (the basis for our narrow moat), and that current earnings pressures are due to acquisition integration and poor execution, both of which are correctable, rather than a broken brand and declining consumer loyalty. Furthermore, we think guidance for over 15% second-half earnings-per-share growth in fiscal 2014 is based on already collected data points regarding planned pricing and square footage increases and early order books--not simply a blind hope that the product resonates better with consumers or that macroeconomic conditions improve.

Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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