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🤝 Insiders: Fall Investment Banker Stock Picks
Fall Investment Banker Stocks to Watch
Short Squeez
September 06, 2023
"Lululemon is the only place where you can spend $100 on sweatpants and feel like you've beaten the system."
As we bid adieu to Labor Day Weekend, finance bros are stowing away their summer linen suits and flip-flops, making way for their Patagonia vests, Timberland boots, and other autumn attire.
Chugging craft IPAs in the Hamptons is coming to an end, but the pumpkin spice economy is back.
This week, we’re delving into some of investment bankers’ favorite fall brands. You might see them at a tailgate or at Equinox this autumn, but there’s a twist.
The four companies we picked are wizards at mastering the direct-to-consumer model, providing higher margins, scalability, and a high potential for growth.
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Top Fall Banker Brand Stocks
Direct-to-Consumer Overview
Before we get into our stock picks, let’s run through the direct-to-consumer (DTC) model and why Wall Street analysts salivate over it.
Essentially, the DTC model is when retailers sell directly to consumers through their websites, physical stores, or even trendy mobile apps.
Before the e-commerce and social media boom, retailers had no choice but to turn to middlemen to sell products.
It was pain, but a necessary evil. Retailers hated it - scalability and inventory management were, to an extent, at the beckoning call of third-party resellers.
But over the past decade, it’s become easier and easier for companies like Lululemon and Canada Goose to sell directly to consumers. It’s not just online websites and advertising - social media has become a huge catalyst.
All four of the companies we picked have over one million followers on Instagram - which is basically free advertising.
If you’re a retailer, DTC isn’t just about cutting costs and leaving middlemen in the dust - it gives you control over everything – your brand, your prices, your customer experience.
DTC has come in clutch in 2023 when consumer spending has dried up - DTC provides companies directly with data and customer insights, which allows them to customize their marketing, improve their products, and overall market more efficiently.
So when we looked at the following four companies, we paid attention to their DTC growth - it’s not just about the quantity of revenue they’re raking in for us, but also the quality.
1. Yeti Holdings, Inc. ($YETI)
Business Overview
Yeti was founded in 2006 and quickly built a niche as the maker of some of the toughest outdoor gear out there. They’re known for their high-quality, ultra-durable coolers, drinkware, and other outdoor accessories.
Yeti realized that their products weren’t just appealing to rugged folks in the wilderness - they’re also a hit at tailgates and rooftop game watches. And the Yeti mug, which might have been designed for a camping trip, has become a staple for corporate Equinox bros.
Yeti might have started out as the ultimate rugged Texas company. But, soon enough, they realized the untapped coastal market loves paying top dollar for the hottest, high-quality brand.
Catalysts
Even amidst recession concerns, Yeti’s going on offense. They’re trying to grow their portfolio of high-margin products like bags, backpacks, duffels, and luggage.
And Yeti’s focused on growing their DTC sales. They’ve grown their Instagram to over one-million followers and now over half of their revenue flows through DTC. The direct-to-consumer model has pushed the company’s profit margins into the 50-60% range - up from about 45% in 2018.
Finally, while Yeti is historically a South and Midwest brand, they’re growing their market share on the East and West coasts, targeting hipster enclaves and corporate bros alike. So keep an eye on Yeti - you can find them on a Texas hunting trip, or even your company’s next board room.
Key Figures $YETI (as of 9/4/2023)
Current Price: $50.88
Wall Street Ratings
Analysts: 8 Buy, 7 Hold, 1 Sell
Median Target Price: $50.00 (-2% premium)
Revenue: $1.6B
Market Cap: $4.4B
EV / NTM EBITDA: 32.2x
DTC Revenue: 56% (as of 7/1/2023)
2. Canada Goose Holdings, Inc. ($GOOS)
Business Overview
It might be a little early, but in the coming months, get ready to see the streets of Midtown lined with investment bankers’ favorite fluffy status symbol - the Canada Goose parka.
Canada Goose was founded in 1957 and catered to building coats for extreme weather conditions. But in recent years, Canada Goose has transformed into a high-quality luxury brand.
$GOOS no longer specializes in saving lives in extreme weather conditions but also saves your status in the social climate.
Catalysts
$GOOS could rebound as consumer spending ticks back up, and China reopens. Canada Goose’s stock has underperformed over the past few years. A key reason? China’s lockup and overall global macroeconomic concerns kept the stock in a slog (their sales in China dropped about 9% last year).
And Canada Goose has built a strong moat in the market, thanks to its association with Hollywood and celebrities alike. The parka is the go-to choice for film crews working in cold environments, and it’s easy to spot the iconic logo patch on celebrities and athletes during the colder months.
And Canada Goose has mastered the direct-to-consumer channels. They account for 78% of Canada Goose’s revenue and are a significant driver of its success.
Such a massive direct-to-consumer channel means Canada Goose has strong, organic growth and a loyal customer base.
Key Figures $GOOS (as of 9/4/2023)
Current Price: $16.27
Wall Street Ratings
Analysts: 4 Buy, 6 Hold, 2 Sell
Median Target Price: $18.00 (11% premium)
Revenue: $31.8B
Market Cap: $1.7B
EV / NTM EBITDA: 10.3x
DTC Revenue: 66% (as of 7/1/2023)
3. Lululemon Athletica, Inc. ($LULU)
Business Overview
It’s hard to step into an Equinox - or even walk through Midtown for five minutes - without seeing someone wearing Lululemon.
Lulu’s relatively new to the game - it was founded in Canada in 1998 and specializes in yoga-inspired clothing and athletic wear.
But with the rise of hybrid work, Lulu has capitalized on the growing athleisure market. Lulu’s ABC and Commissioner pants are some of investment bankers’ favorites.
Catalysts
$LULU is a great growth pick - and for good reason. The company has zeroed-in on two growth categories; (1) men’s clothing and (2) international expansion.
When $LULU reported earnings last week, they noted that their men’s category grew by 15%, impressive considering many of their competitors actually experienced growth contracting. And last quarter, DTC sales made up 40% of $LULU’s total revenue.
Overall, $LULU is doing great - the company posted an overall 18% boost in revenue during Q2, ascending to a staggering $2.2 billion. And they're now aiming for a grand total of 55 net new stores by the end of the year.
And $LULU has experienced impressive year-over-year sales growth of 60% in its international segment. Impressive growth, but the company only sells just over 15% of its products outside of North America. There could be significant room for expansion in untapped international markets such as Europe and Asia.
Key Figures $LULU (as of 9/4/2023)
Current Price: $404.12
Wall Street Ratings
Analysts: 30 Buy, 5 Hold, 4 Sell
Median Target Price: $450.00 11% premium)
Revenue: $8.8B
Market Cap: $51.2B
EV / NTM EBITDA: 22.3x
DTC Revenue: 40% (as of 9/1/2023)
4. VF Corp ($VFC)
Business Overview
How could we talk about the fall in NYC without Timbs? The legacy Timberland boots were swooped up by a company called VF Corporation in 2011. And $VFC owns some of the most iconic NYC brands like Vans, The North Face, and Supreme.
$VFC was founded in 1899 but really went on an acquisition spree in the early 2000s. VF Corporation also controls 55% of the U.S. backpack market, so chances are your work backpack brand could be owned by $VFC.
Diversification across a variety of brands helps $VFC mitigate risks associated with dependence on a single brand or product category.
Catalysts
VF has chosen to keep a low profile, lurking in the shadows, and pouncing on niche brands that promise attractive returns on invested capital. They've decided that brand creation is just too tiresome, so they prefer to snatch up already-existing ones. Their noble goal? To wring $1 billion in annual sales from each brand.
But the company’s stock has been labored by recent setbacks like M&A litigation, the perception that they may have overpaid for Supreme, and supply chain woes.
But while $VFC is at a 10-year low, VC Corporation is targeting a rebound with international expansion and DTC growth. DTC makes up about 47% of $VFC’s total revenue.
While Vans' hasn't been performing well, the company's DTC grew by 6% year-over-year excluding Vans. And the company expects a return to growth in 2024, thanks to strong performance by The North Face brand.
Key Figures $VFC (as of 9/4/2023)
Current Price: $20.46
Wall Street Ratings
Analysts: 10 Buy, 12 Hold, 2 Sell
Median Target Price: $22.60 (10% premium)
Revenue: $11.4B
Market Cap: $8.0B
EV / NTM EBITDA: 30.2x
DTC Revenue: 47% (as of 7/1/2023)
5. ETF - The Global X Millennial Consumer ETF ($MILN)
Business Overview
The Global X Millennial ETF invests in companies that have a high likelihood of benefitting from millennials' rising spending power. These companies operate across a variety of industries such as social media, clothing, apparel, and travel.
Many of the stocks we picked are some of Millennial bankers’ favorites, so we think this ETF goes hand-in-hand with fall bankers’ favorites.
Key Figures
Inception Date: 5/4/2016
Expense Ratio: 0.5%
AUM (Net Assets): $104.8M
1-Year Return: +14.8% (compared to S&P 500 +15.6%)
Return Since Inception: +117.2% (compared to S&P 500 +121%)
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