On the surface, it would be easy to think that Tapestry (NYSE:TPR
) is an easy victim in an economic downturn. The company focuses on high-end handbags, after all, and if there's a cost-cutting no-brainer out there for anyone, it's buying fewer high-end handbags. Most will likely never own anything produced by Tapestry brands like Coach or Kate Spade. New reports out of Credit Suisse suggest that it's a good time to get in, as things will likely be getting better for the retailer soon.
Pent-Up Demand About to Hit Hard
Credit Suisse bumped up its rating on Tapestry from “neutral” to “outperform”, which is effectively a “buy” rating. There were two key points that drove Credit Suisse's upgrade: one, Credit Suisse is looking for a significant comeback in handbag demand as COVID-19 related lockdowns lose ground in the face of declining cases, improving vaccination rates and the arrival of therapeutics to the market. That in turn is likely to bring people back out of their homes and out to their favorite bars, restaurants, nightspots, and the like, and with it, bring back the handbag.
Additionally, Credit Suisse also points out that Tapestry, like a lot of other retailers back in the early days of COVID-19, put a particular focus on opening other growth channels. Such moves have not been lost on Credit Suisse either and contributed to the resulting upgrade. The investments made therein, Credit Suisse noted, are already paying dividends for the company and are likely to continue doing so.
Definitely Not a One-of-a-Kind View
Tapestry's handbags may be one-of-a-kind in their own right, but Credit Suisse's analysis—as based on our latest research—is anything but. Not only has Tapestry been rated a consensus “buy” for the last six months, but the sentiment has generally been trending more bullish through that entire time frame.
Six months ago, the company was evenly split in sentiment, with 11 “hold” ratings and 11 “buy” ratings, which just barely landed the company a consensus “buy” rating. Three months ago, however, a serious shift began as two “hold” ratings departed the picture and six new “buy” ratings showed up, bringing the ratio to nine “hold” and 17 “buy.” One of those “buy” ratings left the picture a month ago, leaving us at nine “hold” and 16 “buy”, but that was when the other handbag dropped. Today, the consensus rating stands at six “hold” and 18 “buy” ratings, showing that this stock has a lot of bull support behind it.
The price target, meanwhile, has only gone up throughout that time frame. Six months ago, it was down around $19.61 per share, but three months ago, it had increased to $24.41. A month ago brought another increase with it as the price target popped up again to $27.68, and today, it sits at $33.39. Given the stock is currently selling at $39.77 per share as of this writing, however, that's a sign of some downside risk.
It's also a sign of some stale price targets; so far this month, 10 different analysts have modified their price targets, and all have modified upward. From Needham & Company to Barclays to Wells Fargo and beyond, analysts from all across the pool are putting a lot more faith behind the handbag maker.
A Sudden Screaming Demand for Handbags
Credit Suisse's basic premise is one that has some weight to it, no doubt. We know that COVID-19 lockdowns, in general, are on the decline, even in those places that were heavily into them before. It's impossible to deny that vaccination rates steadily increase with each passing day, pretty much—it's not a perfect diagonal line on the time-versus-vaccination function chart, but still—and with it greater control over this virus. The idea that increased personal freedom will axiomatically result in a greater uptick in handbag purchases, though, seems a bit unlikely.
In fact, some of that handbag demand may already be baked in, courtesy of those expanded channels that Credit Suisse also mentioned. Back when the earnings report came out a couple weeks ago, we saw just how big online sales were for Tapestry, as half of North American revenue and around a third of global revenue were generated online. Thus, the idea that some of that pent-up demand may have already been satisfied and the produce kept back for the days of greater freedom isn't out of line.
Certainly, though, there are likely those waiting to buy a new handbag for when they can comfortably go out to all the places they used to go, where showing off a new handbag would have been a terrific boost to one's ego. That's going to help Tapestry's fortunes nicely, and with so many analysts looking for gains from the company, not getting in now might be a mistake you'll regret later.
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