A 13G filed with the SEC has reported that billionaire Steve Cohen’s SAC Capital Advisors has increased its holdings of Carter’s, Inc. (NYSE:CRI) to just over 3 million shares, giving the hedge fund ownership of 5.1% of the children’s apparel company. Carter’s owns brands including Carters, Child of Mine, and Oshkosh. Since we track 13F filings from hedge funds such as SAC as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average), we can see that Cohen and his team had a little over 1.3 shares in their portfolio at the beginning of January if we count the Sigma Capital Management subsidiary. Therefore we can see that most of these shares were bought since the beginning of 2013. Find Cohen’s favorite stocks from the 13F.
In the fourth quarter of 2012, Carter’s, Inc. grew its sales by 14% versus a year earlier. This was about in line with revenue growth earlier in the year; the two largest contributors to the improved top line were sales at its Carters retail segment and international operations. Cost of goods sold was actually held down nicely, and even though SGA expenses did growth the company ended up recording 41% earnings growth for the year, nearly matching the results for Q4. Cash flow from operations more than tripled.
Billionaire Andreas Halvorsen’ Viking Global was the largest holder of the stock in our 13F database for the fourth quarter of 2012, reporting a position of 3.7 million shares (see Halvorsen’s stock picks). Hoplite Capital Management, which is managed by former Viking Global employee John Lykouretzos, increased its holdings by 54% to nearly 3 million shares (check out more stocks Hoplite was buying). Christian Leone’s Luxor Capital Group initiated a position of 1.6 million shares between October and December. Research more stocks Leone likes.
How does Carter’s compare to its peers?
We can compare Carter’s to Children’s Place Retail Stores, Inc. (NASDAQ:PLCE), The Gap Inc. (NYSE:GPS), Hanesbrands Inc. (NYSE:HBI), and Nordstrom, Inc. (NYSE:JWN). Most of these companies are trading well below 20 times their trailing earnings. Hanes is the exception, with a trailing P/E of 25, but that company’s net income has been growing in percentage terms and analysts are targeting enough earnings for 2014 that the forward P/E is only 11. The gap is at least narrow in the case of Children’s Place, but that company has been experiencing much more modest earnings growth recently and so we think that Carter’s may deserve its premium relative to that peer. Gap and Nordstrom are larger clothing stores with higher market capitalizations (over $10 billion in each case) and more diverse offerings. Gap in particular has rallied strongly in the last year, with its stock price up 38%, and it reported double-digit growth rates of both revenue and earnings in its most recent quarter compared to the same period in the previous fiscal year. At only 15 times its trailing earnings we think that it could be considered as a value stock. Nordstrom has also been growing nicely, and its multiples are in the same range as Gap’s, so it would be of interest as well.
Carter’s growth rate has been quite high, but we would note that some larger peers have also been turning in an impressive performance with valuations that are much closer to value territory. If neither Gap or Nordstrom checked out upon further research, however, then investors could investigate the chances of Carter’s sustaining its growth rates to the degree that analysts are expecting.
Disclosure: I own no shares of any stocks mentioned in this article.
