Brean: Eight Branded Apparel, Footwear Stocks Worth Buying

Brean Capital has initiated coverage on branded apparel and footwear stocks. In a new report, analyst Eric Tracy discussed what Brean sees ahead for the industry and which stocks the firm thinks investors should be buying now.

Valuations Stretched

Tracy acknowledged that multiple expansion has stretched the valuations of many names in the space in recent years, but still sees plenty of opportunity for choosy buyers.

“We recommend that investors focus on names with attractive risk/reward and sound fundamentals, driven by visible top-line growth (share gainers domestically, realistic global expansion), accretive margin levers (pricing power, supply chain, mix shifts to higher-margin DTC/International) and productive capital allocation (balance funding growth with returns to shareholders in buyback/dividend).”

Related Link: Morgan Stanley Calls Nike's Analyst Day "Very Bullish," Maintained As Top Pick

Growth Themes

Brean sees five key themes that will drive earnings in the industry over the next two years:

• 1. Direct-to-consumer (DTC)/international accretive mix shifts
• 2. Omni-channel evolution
• 3. Manufacturing and supply chain innovation
• 4. Product innovation
• 5. Capital allocation

In particular, Tracy highlighted that DTC operations and international business typically offer major growth opportunities at extremely high margins.

Athleisure

In the past several years, the emergence of athletic clothing worn as leisure wear has created a new category that Brean calls “athleisure.” However, the firm sees this trend as more cyclical than secular, and calls for growth in the area to slow as the market becomes saturated beginning in 2016.

Stock Picks

Overall, Brean is mostly bullish on the space. The firm initiated Buy ratings on the following eight stocks:

Disclosure: The author holds no position in the stocks mentioned.