Tapestry, Inc. (TPR) shares opened sharply higher during Wednesday's session, although it gave up those gains later in the session, after Cowen & Co. upgraded the stock to Outperform with a price target of $30.00 per share that suggests about 15% upside potential.

Key Takeaways

  • Tapestry shares opened sharply higher after Cowen upgraded the stock to Outperform with a $30.00 price target.
  • The upgrade comes after the company announced better-than-expected fiscal first quarter results earlier this week, driven by margin improvements.
  • Traders should watch for some near-term consolidation over the coming sessions before the stock continues its secular move higher.

Cowen analyst Oliver Chen cited the potential for earnings per share (EPS) growth on average unit retail, new customer acquisition at Coach Outlets, and further growth possibilities stemming from higher e-commerce penetration and a growing presence in China.

The upgrade comes after the company reported better-than-expected fiscal first quarter financial results. Revenue fell 14% to $1.17 billion, beating consensus estimates by $110 million, and non-GAAP earnings came in at 58 cents per share, beating consensus estimates by 36 cents. Better-than-anticipated gross margins were the primary driver of outperformance. Management expects a top-line inflection during the second half of the fiscal year, with both revenue and earnings growth in fiscal 2021.

For a variety of reasons, some public companies will use a non-standard or non-calendar quarterly reporting system. For example, Walmart Inc.'s (WMT) first quarter is February, March, and April; Apple Inc's (AAPL) first quarter is October, November, and December; and Microsoft Corporation's (MSFT) first quarter is July, August, and September.

Chart showing the share price performance of Tapestry, Inc. (TPR)
TradingView.com

From a technical standpoint, Tapestry stock briefly retested its highs from earlier this week before giving up ground later in the session. The relative strength index (RSI) remains firmly in overbought territory with a reading of 80.80, but the moving average convergence divergence (MACD) remains in a bullish uptrend. These indicators suggest that the stock could see some near-term consolidation before resuming its trend higher.

Traders should watch for consolidation near Fibonacci support at around $25.26 over the coming sessions. If the stock rebounds, traders could see a move to retest prior highs of $28.46. If the stock breaks down, traders could see a move toward trendline support at around $19.30, although that scenario appears less likely to occur given the recent fundamental strength.

The Bottom Line

Tapestry shares opened sharply higher after Cowen upgraded the stock to Outperform with a $30.00 price target following its stronger-than-expected fiscal first quarter financial results. While traders could see some near-term consolidation given the overbought RSI reading, the intermediate-term trend remains bullish.

The author holds no position in the stock(s) mentioned except through passively managed index funds.