We came across a bullish thesis on Carter’s, Inc. (CRI) on ValueInvestorsClub by HighLine09. In this article we will summarize the bulls’ thesis on CRI. Carter’s, Inc. shares were trading at $62.81 when this thesis was published, vs. closing price of $69.67 as of Sept 10.
Africa Studio/Shutterstock.com
Carter’s Inc., the leading designer and brand marketer of children’s apparel in North America, boasts a rich history of nearly 160 years and a diverse brand portfolio including Carter’s, OshKosh B’gosh, Skip Hop, and Little Planet. The company maintains a dominant position in the children’s apparel market with significant market share in the U.S., Canada, and Mexico, capturing over 10% of the U.S. market and excelling in the toddler and baby segments with shares exceeding 12% and 20%, respectively. Carter’s revenue streams come from three main segments: U.S. Retail, U.S. Wholesale, and International, with U.S. Retail contributing the largest share at 51%, followed by U.S. Wholesale at 34%, and International at 15%.
Carter’s has faced challenges such as inflation, supply chain disruptions, and fluctuating consumer spending. However, the company has demonstrated resilience through its robust operational strategies and investments in ecommerce and omnichannel platforms. This adaptability has been critical in navigating recent economic headwinds, including rising input costs and shifting consumer behaviors. The company’s flexible supply chain and strategic adjustments have helped it manage inventory effectively and optimize production levels.
Financially, Carter’s is in strong health with $150 million of net debt, $350 million in cash, and $500 million in total debt. Over the past decade, the company has averaged $285 million in free cash flows annually, totalling $2.8 billion. During this period, Carter’s has returned $2.6 billion to shareholders through dividends and share repurchases, reflecting its commitment to delivering value. The company has guided for a stronger second half of 2024, with revenues projected to improve to $2.975 billion, slightly surpassing 2023 figures. If revenues grow modestly by 2.5% annually over the next three years, total revenues could reach around $3.2 billion. With a historic net profit margin of 7.9%, Carter’s would generate approximately $253 million in net income.
Assuming Carter’s continues its share repurchase strategy at half its average rate, the share count could decrease from 36.6 million to less than 33 million, resulting in an EPS of around $7.65. Applying a 15x multiple to this EPS suggests a potential share price of approximately $115, representing an 85% increase from the current price and a 100% total return, assuming the company maintains its 5%+ dividend yield. Despite ongoing economic uncertainties, Carter’s established brand strength, operational efficiency, and financial stability position it well for meaningful appreciation and sustained shareholder returns in the future.
Carter’s, Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held CRI at the end of the second quarter which was 34 in the previous quarter. While we acknowledge the potential of CRI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as CRI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article was originally published at Insider Monkey.
Hedge Fund Resource Center