Morningstar's Small-Cap Superstars featured Carter's (a leading children's apparel manufacturer and retailer) as a pick in early October 2007, when the stock was trading around $20. Since then, the company's shares have shed about four bucks and stock analyst Michelle Chang trimmed her fair value estimate. Nevertheless, Chang still believes the stock is significantly undervalued. We'd also note that several of our Small-Cap Superstar fund managers continue to hold shares of this company.  

Last week, Carter's reported decent second-quarter results in a rather difficult retail environment. Stock analyst Michelle Chang was especially impressed with the 17.3% same-store sales growth at Carter's brand retail stores. She also thinks Carter's sales to wholesale customers (comprised mostly of department stores) held up rather well, especially considering that many retailers are cutting back on inventory and purchase quantities. Carter's mass channel business, however, struggled, due to disappointing performance at Wal-Mart. The struggling OshKosh made some progress, but still has a long ways to go in its turnaround. The company's profitability declined modestly. Chang remains comfortable with her current-year and long-term assumptions, which are slightly below management's projections.

To read Chang's note on Carter's second quarter results, click on the link below:

 http://quicktake.morningstar.com/stocknet/san.aspx?id=245756