PVH Corp (PVH): This Apparel Giant Looks Quite Expensive Now

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I am often worried about companies that have experienced a huge amount of insider sales, as it could indicate that insiders might not be bullish about their own companies anymore. Recently, Emanuel Chirico, Chairman and CEO of PVH Corp (NYSE:PVH), sold 47,296 shares of the company, with the total transaction worth nearly $5.7 million. In addition, COO and CFO, Michael Shaffer, also divested 19,000 shares on the market, with a total value of nearly $2.3 million. Let’s take a closer look to determine whether or not investors should be bearish about this stock.

Business snapshot

PVH Corp (NYSE:PVH)

PVH Corp (NYSE:PVH), with more than 130 years in operation, is considered one of the biggest apparel companies in the world, owning a lot of famous brands including Calvin Klein, Bass, Van Heusen, and Tommy Hilfiger. The company operates three main businesses: Tommy Hilfiger, Calvin Klein, and Heritage Brands. Most of its operating income, nearly $421 million, or more than 63.7% of the company’s total operating income, was generated from the Tommy Hilfiger business, while the Heritage Brands and the Calvin Klein businesses contributed $114.6 million and $284.7 million, respectively, in operating profits. The business has a quite concentrated customer base, with the five largest customers accounting for 18.7% of total revenue. The biggest customer is Macy’s, representing around 8.7% of PVH Corp (NYSE:PVH)’s total sales in 2012.

The full control of Calvin Klein brand

In the past ten years, PVH has expanded its business footprint in the apparel industry by acquiring Calvin Klein in 2003, Tommy Hilfiger in 2010, and Warnaco in 2013. Since Warnaco is the biggest licensee for Calvin Klein products, the $2.9 billion acquisition of Warnaco unifies the Calvin Klein brand, giving PVH Corp (NYSE:PVH) direct global control of this brand with two main product categories: jeans and underwear. PVH could benefit from Warnaco’s fast-growing emerging market operations in Asia and Latin America. Moreover, PVH could also leverage its expertise and infrastructure in the developed markets to potentially improve the Calvin Klein jeans and underwear business. For the full year 2013, the company expects to generate around $8.2 billion in revenue, while the operating margin might come in at around 14%, a bit lower than 2012 due to the move from licensing to direct operation of Calvin Klein’s overall business. PVH Corp (NYSE:PVH) estimated that its full year EPS might stay around $7 per share.

It’s richly valued

At $126 per share, PVH is worth around $10.2 billion on the market. The market values PVH at as high as 14.2 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). Compared to its peers, including Ralph Lauren Corp (NYSE:RL) and VF Corp (NYSE:VFC), PVH Corp (NYSE:PVH) is the most expensively valued.

Ralph Lauren is trading at around $172.80 per share, with the total market cap of $15.7 billion. The market values Ralph Lauren Corp (NYSE:RL) the cheapest, at only 10.65 times its trailing EBITDA. In the first quarter, Ralph Lauren Corp (NYSE:RL) had quite good earnings results. While the revenue experienced a small growth of only 1.2% to $6.76 billion, the net income rose by as much as $10.1% to $750 million, or $8 per share. Looking forward, the company expects good growth in the next few years, growing its global store base network and e-commerce platform. The company also has a plan to drive its business in China by providing consumers the “pyramid of brands,” letting consumers have more options to choose Ralph Lauren’s products from the entry level, moving up to the most expensive product lines.

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