- By Omar Venerio
Carter's Inc. (CRI), a $4.29 billion market cap company, is the largest branded marketer in the U.S. of apparel and related products exclusively for babies and young children. The company has declined earnings per share in the most recent quarter compared to the same quarter a year ago, to 95 cents from $1.04. As we can appreciate in the next chart, it has demonstrated a pattern of positive earnings-per-share growth over time. During the past fiscal year, the company increased its bottom line: Carter?s earned $5.11 versus $4.52 in the previous year. For this year, Mr. Market expects an improvement in earnings ($5.62 versus $5.11).
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The intrinsic value of CRI
Key ratios
Competition is always a threat in this industry, where the primary competitors include the ones in the next table. Let?s compare some key metrics:
| Company Name | P/E | P/S | P/B | Div. Yield |
| Carter?s's Inc | 17.8 | 1.4 | 5.6 | 1.6 |
| VF Corp | 21.4 | 2.1 | 5.4 | 2.8 |
| PVH Corp | 24.1 | 1.1 | 1.9 | 0.1 |
| Under Armour Inc | 51.6 | 1.9 | 4.5 | -- |
| Hanesbrands Inc | 17.1 | 1.5 | 9.0 | 2.2 |
| Gildan Activewear Inc | 19.3 | 2.7 | 3.3 | 1.1 |
| Ralph Lauren Corp | -- | 0.9 | 1.8 | 2.7 |
| Michael Kors Holdings Ltd | 10.7 | 1.3 | 3.4 | -- |
| Hugo Boss AG | 21.9 | 1.6 | 4.8 | 3.9 |
| G-III Apparel Group Ltd | 30.0 | 0.5 | 1.2 | -- |
| Belluna Co Ltd | 22.1 | 0.9 | 1.5 | 0.5 |
| Onward Holdings Co Ltd | 28.8 | 0.6 | 0.9 | -- |
| Industry Average | 26.3 | 1.4 | 3.2 | 1.5 |
Regarding valuation, the stock sells at a trailing P/E of 17.8x, trading at a discount compared to an average of 26.3x for the industry. To use another metric, its price-book ratio of 5.6x indicates a premium versus the industry average of 3.20x. Finally, the price-sales ratio of 1.4x is in line with the industry average of 3.73x.
Considering the three ratios, the current price level shows a fair valuation relative to its peers. Michael Kors (KORS) trades for almost 10.7 times trailing earnings and looks the most attractively valued.
As we can appreciate in the next chart, the stock price has a positive trend in the past five-year period. If you had invested $10,000 five years ago, today you could have $15.913, a 9.8% compound annual growth rate.
The return on equity has improved slightly when compared to the same quarter one year prior. As of March, the ROE is at 23.93% which I believe is a strength of Carter's. When compared to other companies in the Apparel & Furniture industry and the overall market, Carter's ROE exceeds that of the industry average and also exceeds that of the S&P 500. The ROE is ranked higher than 91% of the 749 Companies in the Global Apparel Manufacturing industry.