PVH Corp (PVH): This Apparel Company Is Good, But There May Be Better Options

Although PVH Corp (NYSE:PVH) is not exactly a household name, many of its clothing brands are. As consumer spending has been steadily rising over the past several years, particularly on upscale items, PVH has seen its revenues climb tremendously. Add a few major acquisitions into the mix, and PVH Corp (NYSE:PVH) has grown over the past decade from a smaller apparel company with just over $1 billion in revenues to one of the industry leaders, expected to break $8 billion in sales this year. With shares currently at record highs, is there still an opportunity for gains here, or should investors in PVH take their profits and look elsewhere?

PVH Corp (NYSE:PVH)

Who is PVH?

PVH Corp (NYSE:PVH) is an apparel company that operates under some of the most widely recognized brand names in the industry, such as Calvin Klein, Tommy Hilfiger, IZOD, Van Heusen, and several others. The company designs, manufactures, licenses, and distributes a variety of men’s and women’s apparel and accessories under these and other names.

A major component of PVH’s growth strategy has come through acquisitions, and the company has purchased several notable brands and companies, beginning with the purchase of Calvin Klein in 2003. Other notable acquisitions include Superba in 2007, Tommy Hilfiger in 2010 for $3 billion, and most recently the Warnaco Group in February for $2.9 billion, which brought the Calvin Klein brand name.

The Numbers Game

PVH trades for roughly 20.5 times TTM earnings, which seems a bit high at first. PVH Corp (NYSE:PVH) is projected to report earnings of $7.04 per share for the current fiscal year (2014), and are expected to grow their earnings to $8.21 and $9.48 in fiscal years 2015 and 2016 respectively. This corresponds to a three-year average annual earnings growth rate of just over 13%, which more than justifies the valuation, in my opinion. The company has a very good track record of earnings and revenue growth, and I think that PVH Corp (NYSE:PVH) will be able to deliver on the expectations, especially if the economy and consumer confidence continue to improve like they have been.

Other Ways to Play It

Alternatives to PVH include other major fashion brands, such as Ralph Lauren Corp (NYSE:RL), or a more specialized and rapidly growing company such as Coach, Inc. (NYSE:COH), so let’s take a quick look at those for comparative purposes.

At over 23 times TTM earnings, Ralph Lauren Corp (NYSE:RL) looks a bit expensive at the current levels. While they have the same 13% projected forward growth rate as PVH Corp (NYSE:PVH), their balance sheet looks much better, which is certainly worthy of consideration. As a result of its acquisitions, PVH has a significant amount of debt. Ralph Lauren Corp (NYSE:RL), on the contrary, has almost $1 billion in net cash (cash minus debts).

Coach, Inc. (NYSE:COH) is very well known as the maker of very popular women’s handbags, and their sales have grown tremendously over the years. Coach’s latest strategy is to build up its men’s business, which has been very successful so far, with men’s sales up by 50% in the past year alone. Coach trades at a very attractive valuation of 15.6 times earnings, which is extremely attractive for a company with a 12% earnings growth rate going forward. Coach, Inc. (NYSE:COH) also has a very attractive balance sheet with over $900 million in cash and virtually no debt, and they also pay the best dividend yield of the three, at over 2.3% annually.

Buy, Sell, or Hold?

With shares of PVH trading in the teens as recently as 2010, I think that it would be foolish for those who got in near the lows to not exit at least some of their positions and lock in some gains. That being said, PVH definitely has a bright future ahead of it, and the company should realize higher profit margin once their recent acquisitions become fully integrated.

When looking for prospective long-term investments, one of the things I live to see is very little or no debt, some cash, and a decent dividend that has a high probability of increasing over time. In those areas, Coach and Ralph Lauren look slightly better right now, with Coach appearing to be the best value of all. For those who were fortunate enough to make huge profits in PVH Corp (NYSE:PVH) over the past few years, now may be a good time to sell and put your profits in Coach or another high-growth/low- P/E company.

The article This Apparel Company Is Good, But There May Be Better Options originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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