Cowen upgraded Canada Goose to “Outperform” from “Market Perform” as analyst Oliver Chen believes the outerwear brand is well-positioned as an outdoor resource amid the pandemic, a leading brand in stores, and a likely strong beneficiary of China as it recovers faster than other regions.

In a note, Cowen raised its price target for Canada Goose to C$49 (U.S. $36) based on a discounted cash flow that assumes the store base more than doubles over the next 10 years toward 70 direct-to-consumer (DTC) stores internationally. Shares in U.S dollars closed at $32.17 on Wednesday, still down from $36.24 at the close of 2019. The stock had sunk as low as $15 in mid-March with the emergence of the coronavirus.

In a note, Chen highlighted Canada Goose’s ”unique financial positives,” including positive free cash flow, double-digit EBIT margins and a profitable retail channel “in a choppy 2020 as key indicators of financial resiliency and durable earnings power ahead.”

Chen acknowledged that weak COVID-related tourism, which accounts for about half of Canada Goose’s DTC traffic and drives about 30 percent of total sales, is a risk, but the brand’s “prudent focus on China and exceptional profitability metrics make the brand uniquely positioned versus retail peers this year and beyond.”

In its report for the first quarter ended June 28,
 Canada Goose said new openings this year “will be concentrated in Mainland China, where the recovery of traffic remains ahead of other markets. With international tourism now heavily constrained, serving the world’s largest luxury consumer base is its focus.

Chen believes China can contribute to more than 50 percent of Canada Goose’s annual EPS generation over time given the region’s focus on higher-margin DTC selling, also boosting Canada Goose’s profile “as an attractive takeout candidate.” Chen added, “The China opportunity presents a near-term benefit in mitigating lower tourism via repatriation of spend and drives meaningful and durable growth in our model for the longer term.”

Other factors supporting the upgrade include Cowen’s Consumer Tracker exploring brand affinity that found accelerating Canada Goose purchasing trends over the last 12 months and more consumers stating Canada Goose as their first choice for outerwear. Chen wrote, “While average unit retail (AUR) of $1,000 makes GOOS luxury relative to other brands surveyed, Cowen believes brand relevance, high function and warmth utility, and relatively accessible price points versus luxury (Moncler) can yield share gains.”

Photo courtesy Canada Goose