Michael Kors, Coach Potential Suitors In Kate Spade Buyout

Kate Spade & Co KATE stock soared nearly 15 percent on Thursday, ahead of its upcoming fourth-quarter earnings release this month.

Investment firm William Blair has lowered its fourth-quarter and full-year 2017 earnings outlook on Kate Spade amid buyout speculation.

“Our tempered expectations for near-term earnings are primarily a result of continued comp moderation, softer wholesale growth, and gross margin pressure from a heightened promotional stance in the outlet channel,” wrote analyst Dylan Carden of William Blair. “We expect pressures in the fourth quarter to dampen the 2017 outlook,” added Carden.

Despite the lower earnings expectations, William Blair believes shares will continue to trade on buyout speculations and may present attractive value while trading in the expected buyout range of $18–$26.

“Here, we expect potential update with the fourth quarter release given recent press reports suggesting that the company is evaluating bids,” Carden elaborated.

Possible Suitors

Speculations include competitors Michael Kors Holdings ltd KORS and Coach Inc COH could enter the conversation, despite downplaying interest during recent earnings calls.

“We expect a more likely winning bid coming from other strategic buyers including U.S. brand-houses, as well as private equity, with interested driven by a strong brand with still meaningful expansion and margin opportunity,” said William Blair.

William Blair maintains an Outperform rating on the stock.