No-Moat PVH Demonstrates Progress Under PVH+ Plan With Solid Q3 Results; Shares Very Undervalued

No-moat PVH reported third-quarter profitability that exceeded our forecast despite the strong U.S. dollar, economic challenges in Europe (its largest region) and North America, and virus-related restrictions in China. This result provides confidence that, although in early stages, the company’s PVH+ plan for product enhancements, stronger e-commerce, cost-cutting, and inventory control is progressing. Investors reacted positively to the results, sending the shares up about 10% on the day after the release. Even so, PVH still trades well below our $131 fair value estimate, which we expect to lift by a mid single-digit rate. We believe that the market is pricing in medium-term expectations that are much too pessimistic and that PVH is poised to improve its operating margin to nearly 13% over the next three years from about 9% now.