A monitor displays PVH Corp. signage on the floor of the New York Stock Exchange (NYSE) in New York, ... [+]
Despite a 140% rise since the March 23 lows of this year, at the current price of around $71 per share we believe PVH Corp stock (NYSE: PVH) has more room to grow. PVH’s stock has rallied from $29 to $71 off the recent bottom compared to the S&P which moved 52% over the same time period. Gradual store re-openings, as well as a rebound in demand for luxury products, has helped the stock in beating the overall market. However, the stock is down 48% from levels seen in early 2018, over two years ago, and is well below the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. Despite the steady rise since the March 23 lows, we feel that the company’s stock still has potential, as it will see an upswing in demand as the situation normalizes, and its valuation implies it has further to go. Our dashboard, ‘Why PVH Stock Moved -48%?’ provides the key numbers behind our thinking, and we explain more below.
Some of the stock price decline over the last 2 years is justified by the roughly 30% fall seen in PVH’s net income margin from 6% in 2017 to 4.2% in 2019. This decline was partially offset by a 4.7% reduction in share count due to stock repurchases worth $930 million made over the same time period. Overall, PVH’s earnings per share basis fell by nearly 19%, which led to a decline in the company’s stock price. Notably, though, the company’s revenues have seen a steady growth of 11.2% between 2017 and 2019.
Finally, PVH’s P/E multiple remained flat around 19x between 2017 and 2019. While the company’s P/E has declined to around 13x, it seems to be undervalued when the current P/E is compared to levels seen in the past years - P/E of 19x over 2017-2019. We believe the stock is likely to see a decent upside despite the recent rally and the potential weakness from a recession-driven by the Covid outbreak.
How Is Coronavirus Impacting PVH’s Stock?
The Coronavirus crisis has hit the apparel industry hard. Fading consumer demand, reduced discretionary spending, and stay-at-home orders resulting in stores remaining closed continue to take their toll on the apparel industry. The effects of Covid-19 were clearly evident in the company’s Q2 2020 (ending July) earnings, with the company’s revenues plunging by 33% y-o-y to $1.6 billion. However, the company has two of the most recognized brands in the luxury apparel industry in the name of Tommy Hilfiger and Calvin Klein. PVH’s brand appeal and a diversified geographical business should help the company’s revenue to recover. Furthermore, the company’s stores have re-opened which should provide a boost to the company’s revenues as mall traffic returns to normal, given that PVH has one of the largest retail footprints. To sum things up, although PVH’s revenues are likely to be lower in FY’21, PVH’s stock currently seems undervalued due to its strong underlying fundamentals and brand appeal.
Moreover, over the coming months, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus, which set a floor on fear, the market has been willing to “look through” the current weak period and take a longer-term view, with investors now mainly focusing their attention on 2021 results.
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