Bull of the Day: Cherokee (CHKE) - Bull of the Day
One of the great things about the Zacks Rank is it helps me unearth stock ideas that I never would have thought of on my own. For today’s Bull of the Day I utilized not just the Zacks Rank but also the new Zacks Style Score to find a fresh idea. The stock I found is a Zacks Rank #1 (Strong Buy) and also has a Zacks Momentum Style Score of “A.” As the momentum stock strategist here at Zacks, this is music to my ears.
The company I found is Cherokee (CHKE). Cherokee Global Brands is a marketer and manager of a portfolio of fashion and lifestyle brands including Cherokee, Carole Little, Tony Hawk and Hawk Brands, Liz Lange and Sideout. The company has license agreements with best-in-class retailers and manufacturers covering over 40 countries around the world including Target Stores, Kohl’s, Argos, RT-Mart, Pick ‘n Pay, Falabella, Arvind Mills, Shufersal, Comercial Mexicana, Eroski, Nishimatsuya, Magnit, Max Stores and the TJX Companies.
What began as a comfortable, affordable casual shoe company in 1973 evolved into a fashion conglomerate spanning multiple brands. Cherokee pioneered the direct-to-retail licensing model. Over the last year they have grown their operating margins and maintain zero inventory have no manufacturing. Their business has transitioned into a growth company over the past four years and is positioned for sustainable, long-term growth. They’ve grown recently with three accretive acquisitions over the last few years.
As of Q3 FY15, revenues were up 23% to 27.4 million. Net income increased 61% to $8.2 million while EPS increased 57% to 96 cents. Operating income was up 48% to $12.7 million and operating margin increased 700 basis points to 46%.
Cherokee is coming off the heels of several earnings beats over the last few quarters. Its most recent surprise came in to the upside by 2 cents with EPS coming in at 19 cents per share. The quarter before that CHKE put up 27 cents EPS compared with a Zacks Consensus Estimate of 22 cents.
Not wanting to be wrong again, analysts have revised their earnings estimates to the upside for CHKE. Over the last week, an analyst boosted their estimates for the current year and next year. The bullish move has pushed up current year consensus from $1.12 to $1.21 and for next year from $1.14 to $1.25. These revisions are a big reason for the Zacks Rank #1 (Strong Buy).
Momentum has hit the stock price recently, not just the estimate revisions. Not only do we have a big jump in the price but we’ve also got a big jump in volume over the last few days. Over the last year the stock has jumped from the $13 level all the way to $23.06 to close yesterday. After jumping above the 21 day moving average at the beginning of March shares have continued to push higher.
The stock may be a little bit overdone in the short run as the commodity channel index has rocketed to 326.74. A CCI level above 100 represents an overbought condition. It is important to note, however, that stocks can stay overbought for a long period of time and CCI levels can stay well above 100 as the trend unfolds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
CHEROKEE INC (CHKE): Free Stock Analysis Report
To read this article on Zacks.com click here.
