Kate Spade Upgraded as Wells Fargo Predicts Comeback for Brand

  • Stock has been in ‘penalty box’ following weak results
  • Handbag maker has potential for strong growth, analyst says

Kate Spade & Co. was upgraded by Wells Fargo & Co. analyst Ike Boruchow, who sees the handbag maker’s sales and profit margins improving in the second half of the year.

The Kate Spade brand remains healthy, despite investors putting the stock into the “penalty box” following disappointing results, Boruchow said in a report. He raised his recommendation on the shares to outperform, the equivalent of a buy, from market perform. Boruchow also boosted his price target to as much as $24, up from $16 to $18.

Kate Spade “has the potential for strong top-line growth, margin expansion potential and continues to be a healthy brand, particularly in a challenging environment,” he said. “We believe this is not fully appreciated in the valuation.”

The stock rose as much as 3.8 percent to $19.08 in New York on Tuesday. The shares had been up 3.4 percent this year through Monday’s close.

Shares of Kate Spade plunged in August after the company cut its annual forecast, citing weak demand from tourists who come to the U.S. to shop. But the company should start to lap those problems in the second half, Boruchow said.

Chen Grazutis, an analyst at Bloomberg Intelligence, also expects Kate Spade to benefit from its focus on direct-to-consumer sales. The New York-based company gets 75 percent of its sales at company-owned retail stores and e-commerce sites, a higher portion than its competitors. That helps generate better margins.

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