On Monday, Stifel has increased the price target for Kontoor Brands (NYSE:KTB) to $89.00, up from the previous $80.00, while reaffirming a Buy rating on the stock.
The firm's optimism is driven by positive performance indicators from the Wrangler brand, the introduction of new collections, distribution enhancements, and margin benefits, particularly from the $100 million cost savings anticipated from Project Jeanius.
The analyst from Stifel highlighted that despite an inconsistent global wholesale environment and external pressures such as the port strike and economic challenges in Europe and Asia, including reduced consumer demand in China, the near-term projections for Kontoor Brands appear attainable. The firm stands by its expectations that exceed the consensus for 2025.
According to Stifel, the savings from Project Jeanius, which are expected to contribute 240 basis points to gross margin before reinvestment, could lead to earnings growth surpassing the mid-teens in the fiscal year 2025. The projections include potential earnings of $6 per share, compared to Stifel's estimates of $5.55 and the consensus of $5.28, with free cash flow approaching $350 million.
The raised price target reflects confidence in the company's margin outlook and consideration of the earnings potential for fiscal year 2026. Stifel's decision to upgrade the price target is based on the solid fundamentals and expected financial performance of Kontoor Brands.
In other recent news, Kontoor Brands, parent to Wrangler and Lee, reported robust earnings growth and gross margin expansion, exceeding Q2 expectations. The company saw a 1% increase in Wrangler's revenue and a 6% decrease in Lee's revenue, but anticipates accelerated revenue growth for both brands later this year.
Kontoor Brands also raised its full-year guidance for gross margin, earnings, and cash flow, attributing this to market share gains and operational efficiencies.
As part of its cost-saving initiatives, Project Jeanius is projected to yield $100 million in annualized savings. The company also plans a $6 million investment in marketing in the second half of the year to support brand growth. Notably, the adjusted gross margin expanded by 420 basis points to 45.2%.
Despite a challenging environment in Europe and a 1% decline in global revenue, Kontoor Brands remains confident in delivering superior returns. The company expects stronger cash flow due to improved earnings and net working capital management. These are among the recent developments for Kontoor Brands.
InvestingPro Insights
The recent optimism from Stifel aligns with several key metrics and insights from InvestingPro. Kontoor Brands (NYSE:KTB) has demonstrated strong financial performance, with a market capitalization of $4.46 billion and a P/E ratio of 18.6, suggesting a reasonable valuation relative to its earnings. The company's revenue for the last twelve months as of Q2 2024 stands at $2.56 billion, with a healthy gross profit margin of 43.59%.
InvestingPro Tips highlight that Kontoor Brands has raised its dividend for 3 consecutive years, which may appeal to income-focused investors. The company's current dividend yield is 2.5%, with a dividend growth of 4.17% in the last twelve months. This consistent dividend growth supports Stifel's positive outlook on the company's financial health and cash flow generation.
Additionally, Kontoor Brands is trading near its 52-week high, with a strong return of 91.14% over the last year. This performance aligns with Stifel's bullish stance and increased price target. The company's liquid assets exceeding short-term obligations and operation with moderate debt levels further reinforce its financial stability.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Kontoor Brands, providing a deeper understanding of the company's potential and risks.
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