Citi upgrades Capri Holdings stock on optimism about Tapestry acquisition

On Monday, Citi analysts upgraded Capri Holdings (NYSE: ) shares to “buy” from “neutral” and lowered their price target to $41 from $56 previously.

The upgrade comes despite the company's recent weakness, with analysts citing a positive risk/reward tilt. Part of this optimism is based on an ongoing acquisition deal, with Tapestry Inc. (NYSE: ) having agreed to acquire Capri Holdings for $57 per share.

The deal has been approved in Europe and Japan but has hit a roadblock in the United States, where the Federal Trade Commission (FTC) has filed a lawsuit challenging it, with a trial scheduled for September.

However, analysts noted that Tapestry management remains committed to the acquisition and expressed doubts about the merits of the FTC lawsuit. Capri Holdings shares currently trade at $31.70, 8% lower than before the acquisition was announced, with analysts saying the potential rewards outweigh the risks.

The current share price represents a significant discount to the agreed-upon purchase price, and analysts have considered the possibility that the deal may not go ahead.

Still, the probability-weighted price target suggests there's still considerable room for upside. The 80% upside potential is seen to significantly outweigh the estimated 25% downside risk.

Analysts' stance is underpinned by the belief that the market has yet to fully appreciate the likelihood of the acquisition completing, despite the legal challenges. This view is based on Tapestry management's commitment to the deal and the apparent weaknesses of the FTC case. Citi analysts' assessment concludes that Capri Holdings offers an attractive investment opportunity at its current trading price.

In other recent news, Capri Holdings reported fourth-quarter sales and earnings per share that were significantly below analysts' expectations. The company's sales trends are facing challenges and promotional activities are increasing.

The annual decline in operating income this quarter was even greater, down 36% from 33% in the previous quarter. In light of these developments, Jefferies adjusted its outlook on Capri Holdings, lowering its stock price target to $38 from the previous $57, while maintaining a Hold rating on the stock.

Additionally, Capri Holdings is under scrutiny for a possible acquisition by TPR. The acquisition has been approved by the European Commission and the Japan Fair Trade Commission and is awaiting a ruling from U.S. antitrust regulators. Despite challenges from the Federal Trade Commission (FTC), Capri Holdings' management is expected to continue advocating for the acquisition.

These recent developments have shaped Capri Holdings' profile and provided investors with important insights into the company's financial health and strategic direction.

Investment Professional Insights

In light of the recent upgrade on Capri Holdings (NYSE: CPRI ) by Citi analysts, live data from InvestingPro provides additional insights. The market cap is as high as $3.7 billion, showing the company's massive size in the industry. Despite the challenges, Capri Holdings' gross profit margin was as high as 64.58% in the trailing 12 months to Q4 2024, demonstrating its efficient operations and cost management. However, it's worth noting that the company's revenue fell 7.99% during the same period, reflecting some of the headwinds the company is currently facing.

InvestingPro Tip highlights that Capri Holdings' net profit is expected to grow this year, providing a glimmer of hope amid recent share price volatility and the ongoing acquisition deal with Tapestry Inc. , which could signal a potential buying opportunity for investors considering the current discounted price relative to the takeover offer.

For those looking to delve deeper into Capri Holdings' financial health and future prospects, InvestingPro provides additional tips and indicators, including analyst revisions and profit forecasts. Use coupon code PRONEWS24readers who subscribe to Pro and Pro+ annually or every two years can receive an additional 10% discount and access to a total of 11 additional InvestingPro Tips from Capri Holdings.

This article was generated with the support of artificial intelligence and reviewed by an editor. For more information, please see our terms and conditions.

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