Stalking Hilfiger?

Tommy Hilfiger (TOM ) may be the next takeover prey, as apparel consolidation heats up. Because of slumping sales, Hilfiger shares tumbled from 15.70 last June to 5.61 in March. They revived in April, as sales picked up, and in late May the stock rallied, rising to 8.86 by June 11. Behind the leap: buyout talk. William Nasgovitz, President of Heartland Advisors Group, whose Value Fund has been buying, says Jones Apparel would be a "good fit" and "the most likely buyer." He figures Hilfiger, trading at 7 times his earnings estimate of $1.25 a share for the fiscal year ending next Mar. 31, deserves a price-earnings ratio of 12 -- for a share price of 15. Hilfiger earned $1.40 in fiscal 2003. Nasgovitz' estimate is above the consensus of $1.08. Hilfiger, with a book value of $13 a share, reached 41 in 1999, when sales hit $1.9 billion. Nasgovitz sees sales in 2004 rising to $2 billion, up from 2003's $1.8 billion. Even without a deal, Hilfiger is undervalued, he argues. It has cash of $500 million and debt of only $320 million.

No major analyst rates Hilfiger a buy on fundamentals. "It's tough for us to get excited," says Stacy Pak of Prudential Securities, who rates Hilfiger a hold. Prices have been cut by 10%, and inventories were too high, she adds. But in a buyout, Pak expects a "decent premium" of 30%, for a price of 12. Tommy's low p-e and cash, says Value Line's Noah Goldner, "may make it attractive" to a large apparel maker. Hilfiger declined comment. Jones Apparel says it doesn't comment on acquisition plans.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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