EUR 850.00 For Business Accounts Only

Morningstar | We Have Lowered Our Fair Value Estimate on Narrow-Moat PVH; Shares Still Attractively Valued. See Updated Analyst Note from 13 Dec 2018

While we continue to believe that PVH has amassed a narrow economic moat sourced from the solid brand intangible assets in its mix (including Calvin Klein and Tommy Hilfiger), we are lowering our fair value estimate on PVH from $153 to $137. Our lowered valuation partly reflects lighter near-term top-line growth, particularly for the Calvin Klein brand (39% of sales), which we now forecast will grow at less than 7% this year, versus nearly 9% growth prior to account for disappointing third-quarter results (2.2% growth versus our earlier 5.6% forecast). Our long-term outlook for Calvin Klein (nearly 3% average growth) generally aligns with our prior outlook but remains below our forecast for the Tommy Hilfiger brand (around 45% of sales), which we continue to anticipate will grow at a 4% clip on average annually over the next decade.

Further, we expect higher longer-term selling, general, and administrative expenses (which we forecast will be on average 150 basis points above our previous forecast). We expect PVH will allocate additional marketing dollars behind its brand, especially as it works to position Calvin Klein as a more premium brand, and in light of the intensely competitive environment in which it plays. Beyond this, we expect that PVH’s efforts to pivot its business away from department stores toward direct-to-consumer (e-commerce and branded stores) will also result in more inflated SG&A spend over our explicit forecast.

Despite our reduced valuation, we view PVH as attractive at current levels, trading at a nearly 30% discount. We believe investors have overreacted to slow sales of the highest-priced Calvin Klein jeans, currency volatility, and the potential for higher tariffs on Chinese-made apparel. We view the issues at Calvin Klein as relatively minor and temporary and believe tariffs, if implemented, will be transient and can be partially countered with production shifts, with product already sourced from more than 700 factories worldwide.