Bank of America Merrill Lynch is hosting its Consumer & Retail Conference on Tuesday, March 12 and Wednesday, March 13 in New York City.
As the wealth management division of Bank of America Corp (NYSE:BAC), Merrill Lynch is the world’s largest brokerage by assets under management. Charles E. Merrill founded the firm in 1914 before his friend Edmund C. Lynch joined him less than four months later. Fast forward to September 2008, and Bank of America Corp (NYSE:BAC) agreed to purchase the iconic firm after it incurred billions of dollars in losses related to subprime mortgages. Merrill Lynch operated as a full-service bank prior to being acquired by BAC.
With the broader market at all-time or multi-year highs, both the consumer discretionary and retail sectors are performing well this year. Here are three company-specific stories I’m following at this week’s conference.
Tuesday, March 12, 2013 at 9:20 a.m. EDT
Carter’s, Inc. (NYSE:CRI) is the largest branded marketer of apparel for babies and young children, operating under the Carter’s and OshKosh brand names. The $3.4 billion dollar Atlanta firm also acquired Bonnie Togs, a Canadian kids retailer in June 2011.
Going into the New Year, analysts at Citigroup named Carter’s to their prestigious “Top Picks Live” list with a $64 price target. The stock began the year at $55.65 before climbing to an all-time high of $61.22 in February. The children’s apparel company has multiple catalysts, including growth in e-commerce and internationally. Carter’s is also restructuring its supply chain, which should lead to margin expansion within the next 12 months.
On Feb. 27, Carter’s, Inc. (NYSE:CRI) reported fourth quarter earnings of $0.89 per share, beating analyst estimates of $0.84. Revenue was also significantly higher than expected at $689.3 million vs. the $670.3 million consensus. Shares fell nearly 6% following the report in a classic “expectations reset” sell-off. While management handily beat expectations, Wall Street is always looking for more upside.
I would use the minor pullback provided by fourth quarter earnings as a buying opportunity. Revenue at Carter’s has grown 12.9% in the last 12 months, while earnings have grown a massive 39.0%. The company trades at a premium 21x price-to-earnings.
With respect to Tuesday’s presentation, I am looking for re-affirmation of the strong guidance provided on the Q4 conference call, as well as an update on the company’s restructuring plan. Carter’s, Inc. (NYSE:CRI)will gain visibility among retail and institutional investors at this week’s Consumer & Retail Conference.
Coach, Inc. (NYSE:COH)
Tuesday, March 12, 2013 at 9:20 a.m. EDT
Coach is well-known for its luxury handbags for both men and women. The company also markets a full line of accessories, including but not limited to business cases, footwear, watches, jewelry, and fragrance.
On Jan. 23, Coach reported lower-than-expected second quarter earnings on the back of a “challenging” North American holiday season combined with lower traffic from Hurricane Sandy. Earnings per share came in at $1.23 vs. $1.28 consensus on revenue of $1.5 billion, $100 million less than expected. Shares of Coach are now trading within a whisper of their 52-week low, and the company is at the lowest valuation in several years.
Despite the lukewarm holiday season, Coach is planning to increase global square footage at least 10% during the 2013 calendar year. The company has a global presence, and management is investing in the business. On a bright note, Coach’s men’s line is on track to grow 50% globally this year.
Wall Street agrees that Coach is capitalizing on growth opportunities and recommends purchase of the stock. Management is in the process of transitioning its luxury business into a “global lifestyle brand,” suitable for both men and women.
With respect to the upcoming Consumer & Retail Conference, I will be looking for management to give greater clarity on the North American business. The company is scheduled to release third quarter earnings in the latter part of April.
Barron’s Magazine also wrote positively on Coach in its Feb. 24 issue, stating that the luxury goods maker has higher operating margins and a better valuation than competitor Michael Kors Holdings Ltd (NYSE:KORS). Coach’s fiscal year will end on June 29, 2013.
Yum! Brands, Inc. (NYSE:YUM)
Wednesday, March 13, 2013 at 12:00 p.m. EDT
Yum! Brands is an international quick service restaurant operator with more than 37,000 restaurants in 120 countries. Investors have traditionally considered Yum! a growth stock with its emerging markets exposure in large countries such as China.
The owner of KFC, Pizza Hut, and Taco Bell reported fourth quarter earnings back on Feb. 4. While the company reported higher-than-expected EPS and revenue, Yum! Brands, Inc. (NYSE:YUM) stated that same-store sales in China fell 6% during the fourth quarter. In particular, Yum! Brands, Inc. (NYSE:YUM) became a victim of reports that Chinese poultry had too many chemicals, causing sales to sharply decline in the latter part of December.
CEO David Novak advised investors on the conference call that his company no longer expects to achieve earnings growth during 2013, after multiple-years of achieving double-digit growth. The disappointing news caused shares to fall nearly 6%, but the stock has recovered the losses in full going into Bank of America Corp (NYSE:BAC)’s conference.
My main concern for an investment in Yum! is limited visibility; therefore I will be looking for management to adopt a more positive tone with greater clarity during the upcoming presentation.
Foolish Bottom Line
I would be a buyer of Carter’s and Coach following Bank of America Corp (NYSE:BAC) Merrill Lynch’s Consumer & Retail Conference. Carter’s is developing a competitive advantage within children’s apparel, and the valuation on Coach is attractive for long-term investors.
In contrast, I would be a seller of Yum! Brands, Inc. (NYSE:YUM). Recent data indicates that Chinese economic growth is the weakest since 2009, therefore I am not a buyer of the China growth story.
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The article Watch These Stocks at Bank of America Merrill Lynch’s Consumer & Retail Conference originally appeared on Fool.com and is written by John Macris.
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