Citi Research says buy Michael Kors shares after its Versace deal

A shopper looks at Michael Kors handbags at Macy's in New York City.
Scott Mlyn | CNBC

Michael Kors will thrive after its deal to acquire Versace, according to Citi Research.

Last week, the company announced an agreement to buy Gianni Versace for $2.1 billion, including debt. Michael Kors' stock fell about 8 percent on Sept. 24 as news of the deal leaked.

The firm raised its rating to buy from neutral for the luxury goods maker's stock, predicting Michael Kors will report earnings above expectations in its fiscal second quarter.

"We believe KORS (pre-Versace) was a beat and raise story based on a healthier sales/GM [gross profit margin] equation," analyst Paul Lejuez said in a note to clients Wednesday. "We do not have the benefit of perfect information with Versace (since it is private), but we have learned enough for us to believe there are many opportunities for KORS to grow the sales and profits of the Versace brand."

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