Baird lowered its stock ratings on Canada Goose, Peloton and VF Corp. as the investment firm noted concerns that an earnings recovery could take longer than investors have signaled.
Baird’s lead analyst in the space, Jonathan Komp, said stocks in the active lifestyle space had shown some recovery in 2023 due to better-than-expected Q4 pre-announcements, positive January signals and elevated inventories moving past peak levels. However, Komp said Baird projects C2023E/C2024E EPS to come in “well below” consensus due to macro-related pressures.
“Consistent with the views shared in our early-January outlook, we are taking advantage of year-to-date strength for our coverage to step to the sideline on several stocks,” wrote Komp. “We believe investors are growing more optimistic in a soft landing and strong margin-led F2023E earnings recovery. We still fear potential future softening of consumer spending and are projecting C2023E/C2024E EPS below consensus (full recovery not until C2025E), thus seeing a more balanced near-term risk/reward for several lower-conviction ideas which still possess attractive longer-term characteristics.”
On Canada Goose, Komp said the stock is up 21 percent year-to-date and ahead 42 percent since its fiscal second quarter report in November. “We have concerns sentiment now embeds expected tailwinds from a full return of global Chinese consumer spending, straight-line margin recovery and favorable updates,” noted Komp, expected around Canada Goose’s Investor Day on February 7.
Komp added that Baird does not expect Canada Goose’s third-quarter report, which ended in December, to be a catalyst to drive the stock, given the challenges in China. Baird kept its price target on Canada Goose at Canadian $29. On the Toronto Stock exchange, Canada Goose closed at C$28.74, down C43 cents Tuesday.
Komp said VF’s shares had been pressured by earnings guidance reductions “amid a lengthy turnaround for Vans, inventory challenges, balance sheet strain, and an unexpected CEO transition.” VF is expected to benefit from more diversified growth and eventually improved financial leverage, but macroeconomic headwinds and external pressures for its three core brands, Vans, Timberland and The North Face, could delay an earnings recovery.
Baird maintained its price target on VF at $34. On the New York Stock Exchange Tuesday, shares of VF closed at $30.26, down 23 cents.
On Peloton, Komp said the stock had undergone “an extremely challenging call down substantially from early-2021 highs as demand pull-forward and poor execution had become clearer.
“Despite the sizable decline, we are stepping to the sideline now balancing our still-positive long-term view of the Connected Fitness long-run penetration potential, PTON’s status as an industry leader and turnaround progress behind CEO Barry McCarthy with our more cautious view of the environment, including signs of an accelerated return to gyms, which could cause PTON to guide FQ3E (March) below consensus and lengthen the time needed to restore healthy profitability,” noted Komp.
Baird reduced its price target on Peloton to $12 from $14. Shares of Peloton closed Tuesday on the New York Stock Exchange at $11.06, down 60 cents.
Photo courtesy Canada Goose