UBS says this clothing stock is one of its top picks and has 40% upside

PVH , parent of the Calvin Klein and Tommy Hilfiger brands, should see strong earnings ahead, according to UBS. Analyst Jay Sole kept his buy rating and hiked his price target on the clothing maker by 9%, or $14, to $174, which implies a potential upside of 43%. The stock is down about 1% this year but is almost 7% higher in June. Investors’ optimism was sparked after PVH on Tuesday exceeded earnings and revenue expectations in its fiscal first quarter and issued strong guidance for earnings per share in the current quarter and full year. PVH’s “high-quality” quarterly earnings beat increased Sole’s conviction in the former Phillips-Van Heusen’s long-term growth potential, he said. “We think PVH has the brand strength and balance sheet to drive earnings growth over the long term,” Sole said in a Thursday note. “Importantly, we anticipate more beat and raise quarters over the [next 12 months]. This should drive sell-side EPS estimates higher.” Although the company saw sales decline in the first quarter of this year, Sole anticipates its sales will accelerate over each of the next four quarters and growth will turn positive in FY25, fueled by product and marketing efforts. He forecast PVH delivering five-year earnings growing at a 10.5% compound annual growth rate and raised his FY26 earnings per share estimate to 4%. PVH’s gross margin should also reach a new peak, Sole said, as the company shifts to direct-to-consumer and international sales, cost recovery and quality-of-sale initiatives. The company probably saw 65% of sales and nearly 90% of profits coming outside North America, Sole said, but should be able to drive U.S. sales growth moving forward. PVH YTD mountain PVH shares in 2024.