MKM Partners initiated or updated its coverage on several clothing retailers earlier in the morning, with four of them being assigned a ‘Buy’ rating. In the following article we will discuss in more detail each of the four companies, which are: L Brands Inc (NYSE:LB), Lululemon Athletica Inc. (NASDAQ:LULU), Gap Inc (NYSE:GPS), and TJX Companies Inc (NYSE:TJX). Roxanne Meyer, MKM’s analyst who stands behind these ‘Buy’ ratings, suggested that the fast-growing importance of e-commerce and the increasing value-oriented competition within the sector are set to test brand relevance and also trigger changes in the business models of retail companies.
Northfoto / Shutterstock.com
Before proceeding with our discussion and analysis, we will take a look at what Insider Monkey can offer you. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.
Let’s begin our discussion with L Brands Inc (NYSE:LB), which was assigned a price target of $107 per share. According to Roxanne Meyer’s report, L Brands represents an “emerging global powerhouse” and has one of the best management teams in the retail sector. Furthermore, the report also indicated that the company has the capacity to strengthen its margins and expand its top-line, while the long-term focus of the retailer lies on innovation and customer service. The shares of L Brands have embarked on a strong upward trend since the end of the summer, pushing them to a return of 7% year-to-date. This uptrend has been supported by the company’s strong sales in August, which amounted to $826.0 million, up from $765.3 million reported a year ago. Lansdowne Partners, founded by Paul Ruddock and Steve Heinz, is the largest shareholder of L Brands Inc (NYSE:LB) within our database, holding 8.20 million shares.
We can now move on to Lululemon Athletica Inc. (NASDAQ:LULU), which has seen its stock drop significantly over the last few days after the company published its second quarter financial results. MKM Partners established a price target of $69.00 on the stock, which yields an upside potential of 28%. Moving back to the company’s financial report, the athletic apparel retailer reported net revenues of $453.0 million for the quarter, up by 16% year-over-year. However, Lululemon’s income from operations for the quarter decreased by 2% year-over-year to $66.6 million. Ken Griffin’s Citadel Investment Group is one of the top shareholders of Lululemon Athletica Inc. (NASDAQ:LULU), with 2.03 million shares as of June 30.
