Billionaire Steve Cohen’s SAC Bought Shares of Carter’s

We can compare Carter’s to Children’s Place Retail Stores, Inc. (NASDAQ:PLCE), The Gap Inc. (NYSE:GPS), Hanesbrands Inc. (NYSE:HBI), and Nordstrom, Inc. (NYSE:JWN). Most of these companies are trading well below 20 times their trailing earnings. Hanes is the exception, with a trailing P/E of 25, but that company’s net income has been growing in percentage terms and analysts are targeting enough earnings for 2014 that the forward P/E is only 11. The gap is at least narrow in the case of Children’s Place, but that company has been experiencing much more modest earnings growth recently and so we think that Carter’s may deserve its premium relative to that peer. Gap and Nordstrom are larger clothing stores with higher market capitalizations (over $10 billion in each case) and more diverse offerings. Gap in particular has rallied strongly in the last year, with its stock price up 38%, and it reported double-digit growth rates of both revenue and earnings in its most recent quarter compared to the same period in the previous fiscal year. At only 15 times its trailing earnings we think that it could be considered as a value stock. Nordstrom has also been growing nicely, and its multiples are in the same range as Gap’s, so it would be of interest as well.

Carter’s growth rate has been quite high, but we would note that some larger peers have also been turning in an impressive performance with valuations that are much closer to value territory. If neither Gap or Nordstrom checked out upon further research, however, then investors could investigate the chances of Carter’s sustaining its growth rates to the degree that analysts are expecting.

Disclosure: I own no shares of any stocks mentioned in this article.