Estimates have been rising for PVH Corp. (PVH) after the company stated that its third quarter and full year earnings would likely come in at the high end of its previous guidance. This sent the stock to a Zacks #1 Rank (Strong Buy).
The company also recently delivered a strong second quarter in which EPS jumped 39% year-over-year on 21% revenue growth. Based on current consensus estimates, analysts expect 25% EPS growth this year and 15% growth next year.
Despite this, shares trade at just 11.7x forward earnings and sport a PEG ratio of 0.85.
Company Description
PVH Corp. is an apparel company and the world’s largest shirt company. Its brands include Tommy Hilfiger, Calvin Klein, Van Heusen and Izod, among others.
The company is headquartered in New York, New York and has a market cap of $4.5 billion.
Second Quarter Results
PVH reported better than expected results for the second quarter on August 30. Earnings per share came in at $1.07, crushing the Zacks Consensus Estimate of $0.95. It was a stellar 39% increase over the same quarter in 2010.
Revenue soared 21% year-over-year to $1.334 billion, ahead of the Zacks Consensus Estimate of $1.283 billion. The increase was due to a 30% surge in the company’s Tommy Hilfiger business, a 19% increase in its Calvin Klein division and 9% revenue growth in the Heritage Brands segment.
The surge at Tommy Hilfiger was due to significant growth in the European wholesale division and a remarkable 13% increase in same-store sales in the U.S. and 12% overseas.
Rising commodity costs did compress margins a bit, with the gross profit declining from 55.6% of net sales to 54.4% in the quarter. But this was more than offset by the leveraging of its selling, general and administrative expenses, which fell from 51.9% of net sales to 48.1%.
These factors led to a 24% increase in earnings before interest and taxes. Meanwhile, the net profit margin expanded from 5.0% to 5.9% of total revenue.
Outlook
On October 12, PVH stated that its third quarter and full year earnings per share would be at the high end of its previous forecast. The company expects Q3 EPS to be at least at the high end of it previous forecast of $1.75 to $1.81 per share, and full-year EPS toward the high end of its previous guidance between $5.00 and $5.12.
This prompted analysts to revise their estimates higher, sending the stock to a Zacks #1 Rank (Strong Buy). Based on consensus estimates, analysts expect strong growth for PVH over the next two years.
The Zacks Consensus Estimate for 2011 is now $5.16, corresponding with 25% EPS growth over 2010. The 2012 consensus estimate is currently $5.91, equating to 15% growth.
Analysts see strong growth opportunities over the long-term for the company’s Calvin Klein and Tommy Hilfiger brands. This, along with margin expansion, should drive significant EPS growth for years to come.
The valuation picture looks very attractive for PVH. Shares trade at just 11.7x 12-month forward earnings, a significant discount to the industry average of 16.0x, and a discount to its 10-year median of 14.0x.
It sports a PEG ratio of 0.85 based on a reasonable 5-year EPS growth rate of 13.7%.
The company’s price to book ratio of 1.8 is also well below the industry average of 3.0, and its price to sales ratio of 0.8 is below the peer group average of 1.4.
The Bottom Line
With a portfolio of strong brands, stellar growth projections and rising earnings estimates, PVH looks very attractive at just 11.7x forward earnings.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.
