On Wednesday, Citi adjusted its price target for Deckers Outdoor Corporation (NYSE: NYSE:DECK) shares, increasing it to $920 from the previous $835, while keeping a Neutral rating on the stock.
The firm anticipates a significant sales and earnings per share (EPS) outperformance for Deckers Outdoor's fourth quarter of fiscal year 2024, which is set to be reported on May 23 after market close.
The firm's fourth-quarter EPS estimate of $3.58 surpasses the consensus estimate of $2.90, attributed to stronger-than-anticipated UGG brand sales, which are expected to rise by 8% compared to the consensus forecast of 2%. Hoka brand sales are projected to align with consensus expectations, showing a 25% increase.
Despite these strong sales figures, Citi forecasts Deckers Outdoor to provide fiscal year 2025 guidance that falls below consensus, around the $29.00 range, versus the $30.41 expected by consensus.
Citi suggests that investors may interpret the conservative guidance as a strategic move, considering the robust performance of both UGG and Hoka brands. The expectation is for UGG to grow in the mid-single digits and Hoka to see over 20% growth in fiscal year 2025.
However, Citi acknowledges that achieving these targets presents a considerable challenge, especially for UGG, which faces difficult year-over-year comparisons and less visibility following an exceptionally strong third quarter.
The report concludes that there are minimal reasons to hold a negative view of Deckers Outdoor's business fundamentals at present.
Nonetheless, the company must overcome high expectations to realize any significant near-term stock price appreciation. The current market position is deemed to have a balanced risk/reward profile.
InvestingPro Insights
As Deckers Outdoor Corporation (NYSE: DECK) gears up to report its fourth-quarter earnings, investors are closely monitoring the company's financial health and market valuation. According to InvestingPro data, Deckers holds a market capitalization of $22.65 billion, reflecting the company's substantial presence in the industry. The P/E ratio, a key indicator of market expectations about the company's earnings potential, stands at 31.75, suggesting that investors are willing to pay a premium for Deckers' earnings. This aligns with the P/E ratio for the last twelve months as of Q3 2024, which is slightly lower at 31.17.
Deckers' robust revenue growth is also noteworthy, with a 15.34% increase over the last twelve months as of Q3 2024, indicating a strong sales performance. This is complemented by the company's gross profit margin of 54.43%, showcasing its ability to maintain profitability amidst costs. Additionally, Deckers has demonstrated a significant price appreciation, with a 79.53% return over the past year, which is a testament to the company's strong market performance and investor confidence.
InvestingPro Tips highlight that Deckers is trading at a low P/E ratio relative to near-term earnings growth, which could signal a potential investment opportunity for those looking for growth at a reasonable price. Moreover, the company's cash flows can sufficiently cover interest payments, ensuring financial stability and the ability to manage debt effectively. For investors seeking more in-depth analysis, there are 15 additional InvestingPro Tips available for Deckers, which can be accessed by visiting https://www.investing.com/pro/DECK.
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