Children’s clothing retailer Carter’s (NYSE: CRI) wasn’t a stock investment fit for adults as the trading week started. Investors traded out of the company after an analyst cut his price target aggressively. The damage was limited, however, as Carter’s closed the day only 1% lower.
An uncomfortable move
Before market open, Ike Boruchow from the prominent U.S. bank Wells Fargo reduced his fair value assessment on Carter’s to $30 per share from $42. In doing so, the analyst maintained his equal weight (hold, in other words) recommendation.
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The reasoning behind Boruchow’s rather assertive cut wasn’t immediately apparent. By keeping his equal weight rating intact, the analyst reflects the rather cautious stance many investors have toward Carter’s stock these days.
At the end of July, the company reported its second-quarter earnings. While it notched a significant beat on profitability, the bottom line was positively affected by a $132 million payment from the U.S. government to compensate Carter’s for tariffs it had paid (which a federal judge later ruled illegal). The company also missed on its third-quarter guidance.
Digesting these factors, investors spent much of August trading out of Carter’s. The stock has yet to fully recover from the rout.
Niche player
Like Boruchow, I don’t find Carter’s to be an exciting, high-potential stock. It’s posted declines in annual sales over four of the past five years, and its profitability has been thin, even by the standards of the typically low-margin retail space. And while it sells good, attractive products, it isn’t powerful enough in its niche to be compelling, in my view.
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