Another Big Leg Up for Tapestry Vindicates Buy Assertions

One could be forgiven for believing that Tapestry (NYSE:TPR) is a go-nowhere opportunity because all it does is make overpriced handbags. But given that the stock has gained around 30% in the last month, it becomes crucial to reconsider the value of the Coach, Kate Spade, and other brands handbag maker. This may just be a better buy than anyone saw coming.

John Fogerty Quotes Everywhere

The biggest news of late for Tapestry is a note from JPMorgan Chase & Co, which references the John Fogerty song “Centerfield,” featuring the line—which was also the title of JPMorgan's note—“put me in, coach, I'm ready to play.”   The note indeed made Coach, or rather Tapestry, seem ready to play, as it called specific attention to improved bottom-line growth. The note highlighted several likely sources of this growth, including improvements in top-line revenue, gross margin, capital allocation and several others. The combination of these growth factors was sufficient to generate the possibility of a return to double-digit gains for the company.

Better yet, JPMorgan didn't just talk up the company, it also drove up the price target from its previous $25 to a new total of $35. Given that the company is currently trading at $27.28 as of this writing—it was up 6.75% at one point in pre-market trading—that's room for plenty of new upside potential and another significant jump likely to occur in the near term.

Covering All the Bases

The more one looks at the numbers for Tapestry, the more it looks like the bases are covered and a grand slam is in the making, by our latest research. The current consensus recommendation on the company is a “buy”, and it's a consensus that's been rapidly improving for the last six months. Back then, it was actually considered a “hold”, with 15 “hold” ratings and nine “buy” ratings. Now, it's got just nine “hold” ratings, and 17 “buy” ratings. The price target has spiked in recent days, going from $20.90 just a month ago to $24.05 today.

The last week of October proved the biggest treat for Tapestry, with five different analysts all hiking their price targets in the space of a couple days. That was hardly the end of it, though, as shortly after we had not only the aforementioned shift in price target and rating from JPMorgan Chase, but we also had Cowen offer a similar upgrade for price target and rating just five days prior.

Making Gains on Market Changes

Tapestry has been a company packed full of changes lately, and the changes seem to be paying off in a big way. Just three weeks ago, the company brought on a new CEO, Joanne Crevoiserat, and that was just part of a litany of changes that make Tapestry a much more attractive proposition than a luxury clothing maker should ever hope to be.

After all, we're talking about a company that should be hit hard by every economic downturn that even looks at the market funny. Luxury clothing is easily replaced by lower-cost alternatives, and as much as we may not want to go without our Stuart Weitzman boots, replacing them with a set of Timberlands or something of even lower cost is always a possibility. So in the event of a downturn, or even a threat of one, a company like Tapestry should be right on ground zero of the impact.

So instead of focusing on gaining profits—though it is working in that direction—the company is focusing on improving its overall profitability by reducing expenses. The company has already been seen closing several stores—particularly in the Stuart Weitzman line, which by some reports has the company's worst performance in retail—and is instead focusing on direct-to-consumer and online operations.

There's no denying that e-commerce in general saved a lot of retailers from economic disaster the last few months. With retailers forced to limit shoppers in stores or even close outright by government mandate, being able to sell over the internet has given retailers a new life, and Tapestry was no exception. Its increasing focus on online shopping has already borne fruit; the company saw a triple-digit gain in digital sales back in the third quarter, and with the holiday season in full swing, we're likely to see similar gains come out with the end of the fourth quarter in a few weeks.

JPMorgan Chase sees similar potential by the look of it, and that addition to a litany of voices calling for gains from Tapestry makes the company an excellent addition to your portfolio.