After cross-town behemoth Nike, Inc. shares fell 20.7 percent last month after a number of analyst downgrades and price target cuts, Columbia Sportswear Company added some good news tot he Beaverton area today as it saw its shares tick up 4.5 percent on July 8 after Stifel Analyst Jim Duffy upgraded the stock’s rating from Hold to Buy and raised the price target from $84 to $92 per share. The new price target is said to represent a potential 15 percent upside from the share price when the upgrade was first announced today.
Duffy wrote in his note that, “This data set shows the combination of balance sheet strength and low expectations has been a recipe for 12 mos. outperformance.”
The note said COLM features a number of the other variables the analysis shows associated with outsized multi-year returns including:
- Revenue surprise potential (beginning FY4Q and into FY25),
- GM/SG&A leverage fueled EBIT margin expansion,
- A strong CFO/EV yield, and
- Net cash position and an active share repurchase program.
The note also said the revised 12-month Target Price of $92 reflects 10.2x EV/FY25 EBITDA and the firm sees “compelling risk adjusted return for COLM shares.”
Stifel noted a “High potential for positive revenue surprise beginning FY4Q and into FY25” based the following factors while also acknowledging the importance of seasonal weather to 4Q demand and upside potential:
- Topline variance to estimates the strongest determinant of returns,
- A conservative Fall order book points to a clean channel into FY2H,
- Beginning FY4Q, COLM will lap order cancellations, uncooperative weather, and DTC declines in the year ago period, and
- First half 2025 laps compares against carryover Spring/Summer inventory into 1H24, retailer destocking, and DTC declines.
StockStory said in a note that COLM shares are not very volatile versus the market average and over the last year have had only one move greater than 5 percent. “In context of that, today’s move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business,” the company noted.
The last big jump for Columbia came after 2024 first-quarter results surpassed analysts EPS expectations and revenue also came in ahead of consensus estimates. COLM shares jumped 10.6 percent at the time. However, StockStory said “near-term sales demand is likely to be pressured as the company called out a challenging market in North America due to inflation.”
Columbia management also noted at the time that the business was on track to deliver between $125 million and $150 million in savings by 2026, including $75 million to $90 million in cost savings this year. Some of these savings are expected to be channeled towards returning value to shareholders, as demonstrated by the announcement of a regular quarterly cash dividend of 30 percent per share, payable on May 30, 2024, to shareholders of record on May 16, 2024.
Stifel gave a nod to EPS expansion, citing:
- Opportunity for both gross margin expansion and SG&A leverage (FY25E EBIT margin +80 basis points with +50 basis points gross margin),
- Opportunities include a higher mix of full-price selling and profit improvement initiatives forecast to yield $75 million to $90 million in 2024 ramping across 2025 to $125 million to $150 million in annualized saving by 2026, and
- An active share repurchase program net cash ($295 million remains on current authorization representing 6.5 percent of current market cap).
COLM shares are flat for the year.
Image courtesy Columbia Sportswear Inc.
