On Friday, TD Cowen maintained a positive stance on Skechers USA (NYSE:SKX) shares, reiterating a Buy rating with a consistent price target of $76.00. The firm's forecast hinges on an anticipated rise in the footwear company's earnings per share (EPS) for the fiscal year 2025 (FY25), which has been adjusted upwards to $4.92.
The adjustment underpins a valuation of 16 times the projected FY25 EPS and an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 8 times.
The analyst's commentary highlighted the slight increase in estimates for FY25, while also noting potential challenges. Concerns were raised regarding gross margin pressures due to freight costs and uncertainties in the Chinese market, which accounts for 14% of Skechers' sales.
Moreover, the possibility of new tariffs presents a potential headwind, although the impact may be mitigated by the low volume of China-sourced products entering the U.S. market.
The firm's optimistic stock price target is also supported by the potential for valuation multiples to improve if Skechers can enhance its return on invested capital (ROIC), which currently stands at 13%, and its earnings before interest and taxes (EBIT) margin, currently at 10%. These improvements could lead to a re-rating of the company's stock valuation in the eyes of investors.
The analysis by TD Cowen suggests that despite the risks associated with freight costs and the Chinese market, Skechers' financial performance could strengthen, leading to a favorable reassessment of the company's stock value. The maintenance of the $76 price target reflects confidence in the company's ability to navigate through the uncertainties and capitalize on its financial strategies.
In other recent news, Skechers USA Inc . reported a record Q2 sales of $2.16 billion, marking a 7.2% increase year-over-year. This growth was attributed to robust demand across all regions and segments, despite supply chain disruptions and economic challenges. The company also announced a new $1 billion share repurchase plan and increased its full-year sales guidance to between $8.875 billion and $8.975 billion.
Analysts' outlook on Skechers remains positive, with Evercore ISI maintaining an Outperform rating, TD Cowen raising the price target to $78, and Williams Trading keeping its price target steady at $80.00. These firms' confidence in Skechers is associated with the company's growing global market share and anticipated acceleration in its operations.
Skechers' management expressed optimism about the company's performance in the second half of the year, despite slight misses in Q2 sales and earnings per share (EPS) expectations due to challenges such as foreign exchange rates and supply chain delays.
The company's resilience in the face of these challenges, coupled with its strategic initiatives and market positioning, have been noted by analysts. These are recent developments that investors should be aware of.
InvestingPro Insights
Building on TD Cowen's analysis, recent data from InvestingPro provides additional context to Skechers' financial position. The company's P/E ratio of 16.31 aligns closely with TD Cowen's valuation model, which uses a multiple of 16 times the projected FY25 EPS. This suggests that the current market valuation is in line with analyst expectations.
InvestingPro Tips highlight that Skechers is "trading at a low P/E ratio relative to near-term earnings growth," with a PEG ratio of 0.71 for the last twelve months as of Q2 2024. This indicates that the stock may be undervalued considering its growth prospects, supporting TD Cowen's bullish stance.
The company's financial health appears robust, with InvestingPro data showing a revenue growth of 8.02% and an impressive EBITDA growth of 27.05% over the last twelve months. This strong performance underpins the analyst's optimistic EPS projections for FY25.
Addressing the concerns about margins, InvestingPro data reveals a gross profit margin of 53.36% and an operating income margin of 10.15% for the last twelve months. While these figures are solid, there may indeed be room for improvement, especially in light of the potential pressures on gross margins mentioned by TD Cowen.
Investors seeking a more comprehensive analysis can explore 7 additional InvestingPro Tips available for Skechers, offering deeper insights into the company's financial health and market position.
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