Mark Petrie of CIBC Capital Markets lowers his one-year target price on Canada Goose shares despite the publication of good financial results. (Photo: Getty images)
What to do with titles from Canada Goose, Héroux-Devtek and Apple? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from the one expressed.
Canada Goose (GOOS, $26.75): solid financial results in the 4th quarter
Coats and apparel maker Canada Goose reported strong financial results for the fourth quarter of its 2022 fiscal year ended April 3. The company also presented good forecasts for its 2023 financial year.
“Profit margins are expected to recover significantly from their pandemic depressed level, but remain below their pre-pandemic level,” notes analyst Mark Petrie of CIBC Capital Markets.
While the latter sees Canada Goose’s medium to long-term growth potential as attractive, he continues to see elevated risks, both seasonally and geographically.
“Fourth quarter results were good, mainly driven by the US and UK, while Canada and mainland Europe suffered from a drop in tourism, while China was affected by new confinements”, says the analyst.
According to him, Canada Goose’s winter coats are still the company’s most popular products, but sales of lighter garments are growing and increasingly becoming a vital part of its business model.
Mark Petrie adds that the company is counting, in its forecasts for 2023, on a normalization of consumer behavior in China by the third quarter. “Generally, Canada Goose management forecasts are responsible. It’s likely to happen, but it’s impossible to predict with certainty because of the many variables that can come into play,” he explains.
Before the pandemic, Canada Goose reported two years with an earnings before interest and tax (EBITDA) margin of around 25%. “We think the company has the potential to come back to it, thanks to the shift to direct-to-consumer sales, which has greater profitability (than wholesale sales, editor’s note),” he said.
However, Canada Goose will have to rebuild the productivity of its stores to achieve this and attract new customers in its existing markets.
The analyst points out that the title of the company suffered a decline of 57% in the last six months, while the S&P/TSX fell only 5.8%.
“We believe the stock commands a discounted 2023 P/E valuation of 21 times from 28 times.” Mark Petrie reiterates his recommendation to “hold” the title and therefore lowers his target price over one year, which goes from $45 to $37.
Héroux-Devtek (HRX, $14.25): room for mergers and acquisitions