Kate Spade (KATE) 'Extremely Undervalued' Says Sterne Agee

Sterne Agee analyst Ike Boruchow reiterated a Buy rating and $38 price target on Kate Spade (NYSE: KATE) saying while the stock may look expensive history suggest it's actually 'extremely undervalued.'

Boruchow commented, "Investor sentiment on KATE is squarely negative today, often attributed to a premium valuation (based on EBITDA) that is just too much of a hurdle, considering that KORS has seen its multiple contract ~40% YTD. The purpose of this report is to show that this view is flawed, as comparison to KORS' business today is fairly irrelevant. What's more relevant is where similar retail growth stories over the past 15 years have traded - and on that basis KATE is actually extremely undervalued."

He added, "If we use an EV/sales multiple, which corrects for the temporary difference in margin structure, we see that KATE trades a discount to KORS (2.5x vs. 2.7x), despite the fact that KATE has stronger growth prospects today. If anything, we believe that KATE is under-valued relative to KORS, not vice versa."

For an analyst ratings summary and ratings history on Kate Spade click here. For more ratings news on Kate Spade click here.

Shares of Kate Spade closed at $25.15 yesterday.

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