By  on January 7, 2014

According to Citigroup, shares of Michael Kors Holdings Inc. are getting too expensive.

The stock fell 3.8 percent after it was downgraded to “neutral” from “buy” Tuesday morning by Citigroup.
Citigroup analyst Oliver Chen said shares of Kors, even though he still expects strong comps likely to exceed guidance, have reached a fair valuation “given Kors’ 60 percent stock run in 2013.”

Chen’s new price target for the stock is $93 from $95. It closed at $78.94 in trading Tuesday on the Big Board.

In his analysis, Chen said Kors’ $16.8 billion market cap is higher than its accessible luxury peers: Tiffany & Co. Inc.’s is $11.8 billion, while Coach Inc. and Ralph Lauren Corp are each at $15.8 billion. He also pointed to some sector weakness in watches — Macy’s noted weakness in watches during the third quarter and Fossil maintained sales guidance, but slightly lowered margins due to promotions — and how Coach’s strategy to elevate factory store promotions at 70 percent off could represent increased competition for Kors.

While Chen said that the accessory sector read-throughs could convey a “possibility of lack of upside,” the potential weakness in watches and softer handbag performance might be offset by growth in jewelry and men’s.

In his mall checks, Chen said that while “Kors on an overall basis may not be more promotional than last year,” he did conclude that there could have been less promotions during the holiday season when compared with a year ago.

Other risk factors include future fashion execution; supply chain concerns over implementation of the new distribution center and European expansion, and the integration of the e-commerce operation to an in-house function.

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