On Friday, CFRA analyst Zachary Warring downgraded Tapestry Inc. (NYSE: NYSE:TPR) stock rating from Hold to Sell, while simultaneously increasing the price target to $56 from the previous $54. The new price target is based on a 12.4 times multiple of the firm's fiscal year 2025 (ending in June) earnings per share (EPS) estimate, which is above the company's five-year average forward price-to-earnings (P/E) multiple. According to InvestingPro data, TPR currently trades at a P/E of 19.03x, while technical indicators suggest the stock is in overbought territory.
Warring's decision reflects the belief that Tapestry has outperformed its peers and warrants a higher multiple than it has received in recent years. Despite this, the analyst maintained the EPS estimates for fiscal years 2025 and 2026 at $4.50 and $4.75, respectively.
The stock's strong performance is evident in its impressive 88.28% return over the past year, with the company maintaining a GREAT financial health score according to InvestingPro's comprehensive analysis.
The downgrade comes after Tapestry's shares saw a significant 50% rise in less than three months. Warring suggests that the stock is now overvalued and anticipates a period of underperformance ahead. He noted that Tapestry's multiple has increased from under 10 times next twelve months (NTM) EPS estimates to nearly 15 times, which he considers an overshoot for a company with a 2% annual growth rate over the past five years.
Furthermore, the analyst expressed skepticism regarding the company's ability to significantly expand margins following several years of operating efficiency improvements. While Tapestry maintains impressive gross profit margins of 73.91%, he expects revenue growth to remain modest, aligned with the company's 2% revenue CAGR over the past five years. He does not foresee substantial factors that could drive the stock price higher, other than a potential further expansion of the P/E multiple.
In conclusion, Warring suggested that there may be more attractive investment options available within the luxury sector. Discover more insights and 12 additional ProTips for Tapestry with a subscription to InvestingPro.
In other recent news, Tapestry Inc. has seen significant developments. The company's recent first-quarter results exceeded expectations, leading to an increase in full-year revenue and earnings guidance. The company reported a 27% increase in total revenue in Europe and a 5% decrease in Greater China, aiming for a full-year revenue growth of 1-2% and expecting to expand its gross margin by over 50 basis points by fiscal 2025.
Tapestry's financial outlook was revised from negative to stable by S&P Global Ratings, following the termination of a merger agreement with Capri Holdings (NYSE:CPRI) Ltd. due to regulatory uncertainties. Analysts from Jefferies and Barclays (LON:BARC) have upgraded Tapestry's stock and increased the price target, citing expected sales growth, expanding margins, and a share buyback program.
BofA Securities reaffirmed a Buy rating on Tapestry Inc., increasing the price target following the completion of a $2 billion accelerated share repurchase agreement. Bernstein, a prominent financial research firm, expects large global brands like Tapestry to have a minimal impact from a potential 10% increase in import tariffs on China, thanks to their diversified supply chains and international market presence.
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