Warm Up to Columbia Sportswear

11/20/2020 5:00 am EST

Focus: CONSUMER

Bruce Kaser

Chief Analyst, Cabot Undervalued Stocks Advisor

Columbia Sportswear (COLM) produces the highly recognizable Columbia brand outdoor and active lifestyle apparel and accessories, as well as SOREL, Mountain Hardware, and prAna products, notes Bruce Kaser, growth and income expert and editor of Cabot Undervalued Stocks Advisor.

For decades, the company was successfully led by the one-of-a-kind Gert Boyle, who passed away late last year. The Boyle family retains a 36% ownership stake and Gert’s son Timothy Boyle remains at the helm.

Columbia reported disappointing third quarter results, with adjusted earnings per share down about 46% from a year ago and about 25% below the consensus estimate.

Revenues fell 23% and were about 9% below estimates. Adding to investor frustration, the company’s fourth quarter outlook was discouraging: sales were guided to about 2% below consensus estimates and earnings were guided to about 20% below consensus estimates. The shares fell sharply on the news.

The company said that orders continued to strengthen in the fourth quarter, raised its cost-cutting goal to $100 million this year and announced the retirement/replacement of its chief operating officer and other senior operations executives.

Columbia’s balance sheet remains solid, holding $315 million in cash and no debt, providing the company with considerable financial flexibility.

Columbia’s long-term earning power appears unimpeded but is being pushed out into the future. Also, we think the company is being exceptionally conservative with its forward guidance, given the wide range of uncertainties and the danger that another significant “miss” would more severely damage their credibility.

The shares trade at 21.1x estimated 2021 earnings of $3.77. For comparison, the company earned $4.83/share in 2019. We rate the stock a buy in our "buy low opportunities" model portfolio.

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