We came across a bullish thesis on Tapestry, Inc. (NYSE:TPR) on ValueInvestorsClub by baileyb906. In this article, we will summarize the bulls’ thesis on TPR. The company’s shares were trading at $65.30 when this thesis was published, vs. the closing price of $85.42 on Feb 28.
Creative Lab/Shutterstock.com
TPR provides luxury accessories and branded lifestyle products in North America, Greater China, the rest of Asia, and internationally. 48% of its sales comes from handbags with North America accounting for 65% of its business.
Coach, the bag and leather accessory segment has been gaining popularity over the years and is at a decade-high level. It is a favorite among Gen Z customers with footfalls significantly higher during periods like Black Friday. The number of Google searches and the frenzy on TikTok suggest a decent growth rate for this segment for the coming quarters. The management guidance for Coach reflects a 3% growth but 5% would be a more reasonable estimate. This growth can potentially drive the FY2025 EPS to $5, higher than the street estimate of $4.64.
TPR can also improve its EPS estimates from the recent cancellation of a deal to acquire Capri Holdings. This would enable the firm to borrow more and purchase more stock which could boost sales further. A better leveraged structure combined with a higher revenue should drive the 2025 EPS above $5 and the 2026 EPS above $6.
TPR has been trading in the 10-20x range of its EPS, with 16x being a base case scenario. While the consensus estimates project a single-digit growth in EPS, 15-20% growth is achievable if Coach can grow at 5% and TPR repurchases some of its shares. The share price is trading close to 16x its 2025 estimates but there is still more headroom for growth considering a $6 EPS projection for 2026. Taking the 2026 EPS as a measure of the stock value, TPR offers a 13% return from its current price. A rerating to a higher multiple is possible once TPR manages to beat estimates and the street believes that its EPS can grow at mid to high teens.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
This article was originally published at Insider Monkey.
