Kontoor Brands (KTB) has the potential to become a "growth stock" after selling its Lee brand, given its sales growth, margin expansion, and improving cash returns, UBS Securities said in a Thursday note.

The company's management outlined a credible path to earnings of $7 per share in fiscal 2027 as it released its fiscal Q2 results, the brokerage said. Kontoor Brands reported fiscal Q2 adjusted EPS of $1.06, up from $0.94 a year earlier, as revenue rose to $584.3 million from $492.6 million.

Key growth drivers include the ongoing momentum of the Helly Hansen line and Wrangler's market share expansion in core US bottoms, UBS said. Favorable mix, Helly Hansen accretion, and savings from its Project Jeanius transformation initiative are expected to back strong gross margins through H2, the brokerage added.

The sale of Lee also remains on track for completion in Q4, with proceeds to fund a $400 million accelerated share buyback that should support EPS growth into fiscal 2027, UBS noted.

UBS raised its price target on Kontoor Brands to $136 from $131, with a buy rating.

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