Brean Likes PVH's Risk/Reward Heading Into Wednesday's Earnings Release

Brean Capital’s Eric Tracy maintains a constructive stance of PVH Corp (NYSE: PVH) ahead of the 1Q results release on May 25, while mentioning that the risk/reward on the stock was currently compelling.

Tracy maintains a Buy rating on the company, with a price target of $111.

The Bullish Stance

The analyst explained that his bullish stance was based on the belief that despite the recent “domestic dept store carnage, PVH will at a minimum, reiterate FY16 guide,” given the continuing revenue momentum at Calvin Klein in the United States and Europe.

Tracy mentioned that the profitability improvements at Calvin Klein were still in their early days, while FX issues were expected to wane in 2H.

Related Link: PVH's Q1 Might Be "Obscured" By FX Issues

“As current discounted valuation focuses on domestic department store risks, we continue to believe the market is under-appreciating PVH's inflecting operating model,” Tracy stated.

FY16 Guidance Likely To Be Reaffirmed

Tracy expects management to reaffirm the FY16 EPS guidance of $6.30–$6.50, given that the guidance already accounts for slower revenue growth at Calvin Klein for 2H, along with continuing domestic pressure on Tommy Hilfiger.

However, FX is expected to pressure EPS by $1.60 in FY16, with the impact declining through 2H, while revenues are likely to benefit from continued momentum at Calvin Klein, “potentially augmented by better positioned” Tommy Hilfiger.

PVH Corp expects to generate free cash flow worth $500 million in FY16, while Tracy expects “capital structure optimization, strategic license reacquisitions, and cash returns to shareholders.”