On Friday, UBS reiterated its Buy rating on shares of Deckers Outdoor (NYSE: NYSE:DECK), maintaining a price target of $225.00. The firm's positive stance is grounded in the continued rapid growth of Deckers' footwear brand, Hoka. UBS projects that Hoka's growth will be a key contributor to Deckers' future sales and earnings performance.
The analyst from UBS highlighted Hoka as one of the world's fastest-growing footwear brands, which is expected to sustain its strong momentum with consumers. This consumer traction is anticipated to drive significant sales growth for the fiscal year 2025 and contribute to earnings that exceed expectations. Hoka is forecasted to achieve a 20% five-year compound annual growth rate (CAGR) in sales, which is seen as the primary factor behind Deckers' estimated 15% five-year earnings per share (EPS) CAGR.
The firm's analysis suggests that Deckers' robust outlook for EPS growth warrants a valuation of approximately 30 times price-to-earnings (P/E). The expectation is that market sentiment will remain favorable towards Deckers as the company demonstrates its ability to sustain high rates of sales and EPS growth.
Supporting this bullish outlook, UBS cites recent discussions with Hoka's Senior Director of Product, Performance Footwear, and the Deckers Investor Relations team. These meetings took place at the UBS Athletic Training and Lifestyle Innovation Day in Boston and have reinforced the firm's confidence in Deckers' growth trajectory.
In other recent news, Deckers Outdoor has experienced significant growth and strategic changes. The company's Q1 FY2025 revenues saw a robust 22% increase, reaching $825 million, primarily driven by a 30% surge in revenue from the HOKA brand and a 14% rise from the UGG brand. As a result, Deckers' annual profit forecast has been revised upwards.
Deckers has also undergone a 6-for-1 stock split, a move well-received by analysts from firms such as Williams Trading and TD Cowen, who adjusted their price targets to reflect the new valuation. Investment firms Baird, Truist Securities, and TD Cowen have raised their price targets for Deckers, indicating a positive outlook. The company's new CEO, Stefano Caroti, is set to take over leadership. Retailers are adjusting their inventory strategies to accommodate more HOKA and UGG products.
InvestingPro Insights
As UBS maintains a bullish stance on Deckers Outdoor (NYSE: DECK), key metrics and InvestingPro Tips can provide additional context for investors. Deckers holds a strong financial position, with more cash than debt on its balance sheet, which could offer resilience and flexibility in its operations. The company's trading at a P/E ratio of 29.94, which is considered low relative to its near-term earnings growth, indicating potential undervaluation given its growth prospects.
With a robust revenue growth of 20.3% over the last twelve months as of Q1 2023, Deckers is demonstrating the kind of sales expansion that UBS anticipates. Moreover, the company's gross profit margin stands at an impressive 56.54%, underscoring its ability to maintain profitability amidst growth. It's also worth noting that Deckers has experienced a high return over the last year, with a price total return of 88.12%, reflecting investor confidence and market performance.
Investors seeking more in-depth analysis can find additional InvestingPro Tips, which include insights on Deckers' ability to cover interest payments with its cash flows and the fact that its liquid assets exceed short-term obligations. There are 13 more tips available on InvestingPro, providing a comprehensive understanding of Deckers' financial health and potential investment value.
The InvestingPro Fair Value estimate stands at $124.24, compared to the analyst target of $180, offering a conservative perspective on the company's valuation. As the next earnings date approaches on October 24, 2024, investors will be watching closely to see if Deckers can continue to meet or exceed market expectations, particularly in the performance of its Hoka brand.
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