Baird Says Canada Goose Sell-Off Is Unwarranted, Upgrades To Outperform

Canada Goose Holdings Inc. Subordinate Voting Shares GOOS reported its fiscal third-quarter results Thursday, with a top-and-bottom-line beat — yet shares ended the trading session lower by more than 15 percent.

The Analyst

Baird Equity Research's Jonathan Komp upgraded Canada Goose's Toronto-listed stock rating from Neutral to Outperform and lifted the price target, denominated in Canadian dollars. 

The Thesis

Canada Goose's Q3 was "very solid" with "no holes to pick," Komp said in the upgrade note. (See the analyst's track record here.) 

The direct-to-consumer business rose 83 percent; gross margin rose 605 basis points; and EPS came in 20 percent ahead of expectations. It's possible that investors were "hoping for even greater upside" in the report, which may explain Thursday's sell-off, the analyst said. 

Another possibility: Thursday's sell-off represents a one-time recalibration of expectations, as the report does mark Canada Goose's first-ever fiscal third quarter earnings release as a public company, the analyst said. Looking forward, there are three notable reasons to be buyers of the stock after the print, Komp said:

• Canada Goose's brand blends luxury and function.
• A significant geographic whitespace lies ahead, especially in the U.S. market, where brand awareness stands at 20 percent versus 70 percent in Canada.
• Expectations for a mid-to-high teens revenue growth rate and a 20-percent-plus EPS growth rate.

Canada Goose boasts a "very bright" multiyear growth profile and, under a blue sky scenario, the company can grow its earnings by 2.5x or more over the next few years, according to Baird. 

Price Action

Shares of Canada Goose were up 1.66 percent Friday morning. 

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