We’re adding Tapestry (TPR) back to our Long Bias list. The punchline is that we think that estimate revisions have bottomed, the category is starting to show signs of life and the stock is flat out cheap on both earnings and cash flow. We don’t care about valuation when we’re in a downward revision cycle, but when estimates get to a realistic level, then cheap matters. When we took TPR off our Best Ideas list earlier this year, estimates for FY21 were sitting at $2.75, and now we’re down to $1.84, a level we think is achievable and beatable. The stock is sitting at 8x recovery earnings of $2.50, which is about as low as we think it’ll get. Over 12 months we think that we’ll be looking at closer to 12x earnings, which gets us to a $30 stock – 50% upside. The company isn’t without its challenges – most notably at Kate Spade and Stuart Weitzman – not to mention a major hole in the C-suite at the CEO level. But the core Coach brand – which only has 3% exposure to ailing department stores – appears to be stable, and there’s still optionality in taking back in or renegotiating Kate Spade licenses, which is still a major opportunity for TPR. The Street is looking for a 50% EPS decline in the upcoming quarter, which compares to a 150% decline in both the March and June quarters – which seems about fair. We’re looking for a 40% decline, which we’d consider about in-line, but would look to get more aggressive on the name (i.e. Best Idea status) after we de-risk the upcoming quarter. But as it stands today, we’re looking at $10 upside, and about $3 downside, which screens better than most names in retail today.
