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CHARLOTTE (Dow Jones)--Morgan Keegan
& Co. initiated coverage of eight fashion brand producers
Thursday, saying pockets of strength remain despite uncertainty
for several companies due to retail consolidation, higher
energy prices and rising interest rates.
The firm initiated coverage with outperform
ratings on Coach Inc. (COH), Liz Claiborne Inc. (LIZ),
Polo Ralph Lauren Corp. (RL), VF Corp. (VFC.NYS) and Quiksilver
Inc. (ZQK). Morgan Keegan started coverage of Fossil Inc.
(FOSL), Jones Apparel Group (JNY) and Kellwood Co. (KWD)
at market perform.
Analyst Brad Stephens, however, downgraded
shares of Kellwood to underperform on Friday after the
company's disappointing first-quarter earnings release
late Thursday. He called earnings quality poor and said
he has reservations about Kellwood's ability to achieve
its guidance for the full year.
In his initiation report, Stephens said
he favors apparel producers with market-leading labels,
multiple channels of distribution, limited exposure to
less profitable businesses, and strong cash-flow generation.
In particular, he likes Polo Ralph Lauren's luxury focus
and long-term growth opportunities and Liz Claiborne's
evolving portfolio of high-quality brands. He believes
VF shares could benefit from increases to the price-to-earnings
multiple, and he expects Quiksilver's closing of a recent
acquisition and its subsequent articulation of a longer-term
strategy to be catalysts.
The accessories industry could be one
of the hottest sectors again in 2005, even if momentum
moderates soon, Stephens wrote. Both Fossil and Coach
have "carved out a niche in their respective spaces,
boast strong management teams and have ample opportunities
to drive long-term revenue growth through the execution
of each of their unique strategies," he said.
Concern over Fossil's European business
and expense control overshadow Morgan Keegan's enthusiasm
for the top-line growth story, Stephens wrote.
Stephens doesn't own any of the stocks,
but Morgan Keegan makes a market in shares of Fossil.
-By Mary Ellen Lloyd
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